Why the Future Is Bright for American Express Company

There is a lot to like about American Express (NYSE: AXP  ) , but all signs point to one recent move adding even more to that list.

The major program
It is no secret American Express is accepted at fewer stores -- almost entirely small businesses -- than Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) in the United States. This is largely the result of the higher per transaction charge that American Express requires from merchants relative to both Visa and MasterCard.

Yet in February American Express announced it had begun its efforts to ensure its cards are accepted at more small businesses across the country in a program known as OptBlue. At the investor presentation American Express President, Ed Gilligan, said this program would be used to "dramatically accelerate the signing of new merchants coming on to accept American Express over the next couple of years."

A few months later we learned it had teamed up with five of the largest 10 acquirers in the payments industry who coordinate with the small businesses to ensure American Express acceptance is more available to consumers across the country. As a result, all signs began to point within the coming years that the OptBlue program would likely push the American Express acceptance rate closer to MasterCard and Visa.

And recent remarks from one of its executives provide even more optimism for the future of American Express and why this program could mean big things for the company and its shareholders.

Source: Flickr / Clemson.

The reason for optimism
At the recent Morgan Stanley Financials Conference Jeff Campbell, the chief financial officer at American Express sat down to discuss what the future of American Express would be. And his remarks on the progress of the OptBlue program were some of the most insightful takeaways.

Campbell began by noting the OptBlue program was "just another step in a long evolution in the history of [American Express]." While it would previously manage all of its relationships with those businesses which accepted its credit cards, it has slowly grown to have more partnerships with acquirers to ensure its cards are accepted at more and more locations.

Although American Express is accepted in locations where roughly 90% of all sales on a dollar basis occur, in reality, it's only accepted at around 70% of merchants. As a result, Campbell suggested the OptBlue program itself may not translate to the bottom line of the company in a significant way. Yet the critical bit of insight was this remark:

What it's really about ... is changing the perception of coverage, which we actually think generates benefits throughout the issuing part of the business.

The key takeaway
As Campbell notes above, the benefit to American Express from OptBlue likely won't be the incremental dollars that flow in from more transactions. After all, most of the places that don't accept American Express cards are places like family owned restaurants, or dry cleaners, where the bills are small.

Yet a possible American Express customer could see they couldn't use their card at their favorite neighborhood bakery and may be less inclined to apply for a card. But if the American Express sticker all of the sudden showed up on the glass next to the door at their favorite mom and pop shop, it could be the final step necessary to have them to begin a relationship with AmEx.

At times we can think moves like this can only have one benefit -- more swipes, more fees -- but it's easy to see how this program could be a major boost to American Express and the customers it draws in as it becomes accepted at more and more locations.

All of that is to say the OptBlue program will likely provide an incredible return on the investment in more ways than one.

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