Why American Express and Citigroup Inc. Should Be Worried About This 1 Company

Citigroup and American Express have massive credit card businesses, but it turns out Discover Financial Services has more reasons to be optimistic about its future.

Jun 9, 2014 at 7:00AM

American Express (NYSE:AXP) and Citigroup (NYSE:C) face countless competitors in the credit card industry. But it turns out Discover Financial Services (NYSE:DFS) may be poised to take them down.

The stunning truth
Many people know American Express and Discover are major players in the credit card world. While Discover has some operations outside of the credit card space -- it has a full-fledged banking arm -- the two are undoubtedly linked and known for their massive dependence on income from the credit cards they issue.

Citi By S

Source: Flickr / S_E_Santana.

Citigroup is less known for its credit card presence, but it too has a massive reliance on credit cards. Across the globe it has a staggering 140 million accounts open, compared to 108 million for American Express. 

In the first quarter alone Citigroup drew in $4.6 billion worth of net interest revenue from its credit cards outstanding, representing more than 40% of its total revenue earned from the interest charged on loans across the bank.

And while Discover may be the smallest of the firms, it turns out it has the biggest reason to be optimistic about its future.

The big win
Each year Satmetrix releases its net promoter score, which calculates the likelihood of a customer to recommend a product or service they've used to someone else. It's based off a survey of more than 23,000 people across the U.S. and their opinions not just on brands and products in financial services, but technology, retail and much more.

It's calculated relatively simply, as it takes the percent of customers who would deemed promoters (who rank the brand as a 9 or 10 on the ten point recommendation scale) minus those who are detractors, with a score of six or below.


And some of the biggest news this year came from previously mentioned credit card industry, as American Express gave up its six year reign as the company with the highest NPS with a score of 45.

And who beat it?

Discover, as it's score rose from 44, narrowly trailing American Express in 2013, to now stand at 52.

So how'd Citigroup do? It certainly wasn't third place. And it wasn't even close, as even despite the 12 point increase versus 2013, it was "the industry laggard with an NPS of 18 points."

Why it matters to investors
The natural question becomes, how does all of this matter to investors? A data scientist at Satmetrix, Brendan Rocks, noted:

The Net Promoter leaders in their respective industries have positioned themselves to outpace their competitors in the areas of increased customer retention and acquisition.

In the case of Discover and American Express, evidence of the strong NPS scores provides one more reason to have confidence in their long-term potential as investments, since having strong customer loyalty is essential for success in the credit card industry.

However for Citigroup, knowing it's the "industry laggard" in a business it really depends on is troubling. Although it's added nearly 7 million new accounts over the last year, it saw its total fall by 2 million during the first three months of the year. And while its accounts were up by 5% over the year, the number of purchase sales rose by less than 2%.

American Express and Discover each offer compelling investment considerations, but with each day Discover provides more and more evidence that it is poised to do great things in the years to come.

On the other hand, investors must keep an eye on this one rarely discussed, but essential part of Citigroup that seems to be in trouble, as its success is critical to the business as a whole.

Your credit card may soon be completely worthless
Discover and American Express are reliant on one thing, but they are incredibly nervous about the changes coming. You see, the plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Patrick Morris owns shares of Discover Financial Services. The Motley Fool recommends American Express. The Motley Fool owns shares of Citigroup and Discover Financial Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information