Why the Future Is Bright for American Express Company

American Express is definitely different than Visa and MasterCard, but one recent move to mimic the two credit card giants could mean big things to the company.

Jul 1, 2014 at 6:00AM

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.

Credit Cards

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.

Amex Black Card By Clemson

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.

Your credit card may soon be completely worthless
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 has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard and Visa. 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

Compare Brokers