American Express Headed For $60 With Plans To Adopt EMV Technology

American Express (NYSE:AXP) has unveiled plans to issue Europay MasterCard (NYSE:MA) Visa (NYSE:V) (EMV) compliant cards across the U.S. this year. The company plans to set up processors to facilitate transactions through chip-based technology across diverse payments methods including PIN, signature, contactless and mobile transactions. ^[1] American Express plans to capitalize on the growing demand for cashless services, which provide a relief from the burden of carrying cash in your wallets.

See our complete analysis of AmEx’s stock here

The Future Is Now

Cashless transactions are rapidly gaining popularity across the world as technology continues to develop. American Express recently launched PAYVE, a centralized electronic payments service to cater to corporate payments in the U.S.  (See American Express Is Ready To Take Over The Corporate Payments Business) Mobile phone payments are a major component of the revolution to make cash obsolete. A recent study by Deloitte revealed that 5% of sales in retail stores in the U.S. are completed through mobile phone payments, and this number is expected to rise to as high 19%, by 2016, exceeding $600 billion in sales volumes. ^[2]

Some concerns have been raised by authorities over the safety of mobile phone transactions, particularly regarding the exposure to fraud. ^[3] In a hearing held by House Subcommittee on Financial Institutions and Consumer Credit, the authorities have raised concerns over the size of the mobile screens that do not allow customers to fully understand the terms to the transactions, leaving them vulnerable to misappropriation. The Electronic Funds Transfer Act and Truth In Lending Act, which cover credit and debit cards may be in for some reforms in the near future.

American Express plans to institute a Fraud Liability Shift (FLS) policy to handle liability in case of a fraudulent transaction through EMV technology. The company will also exempt merchants who use its EMV chip-based processors from PCI Data Security Standard (DSS) reporting requirements, in order to improve acceptability of its cards.

We expect improving economic conditions to drive consumer confidence, leading to a rise in transactions. American Express, with its unique spend-centric strategy is perfectly poised to capitalize on this trend. (See American Express Is Good For $60 Despite The Macro Uncertainty)

We currently estimate a price of $60 for American Express, in-line with the current market price. You can gauge the impact of a change in the forecast on our price estimate by modifying the chart above.

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1. American Express Announces U.S. EMV Roadmap to Advance Contact, Contactless and Mobile Payments, BusinessWire, 29^th June, 2012 [↩]
2. Smartphones will influence 19pc of retailers’ sales by 2016: study, Mobile Commerce Daily, June 28^th, 2012 [↩]
3. Regulators Say New Rules May be Necessary for Mobile Payments, Nasdaq, June 29^th, 2012 [↩]