American Express (AXP -0.07%) has been a fantastic company to own. In the past five years, it has generated a total return of 233% (as of Sept. 10). This gain trounces that of the S&P 500 index by a very wide margin.
While this financial stock hardly flies under the radar, its business model is unique. And investors might not be familiar with how things work. Here's one important thing to know about how American Express makes money.
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Targeting an affluent customer base
American Express offers what are known as charge cards. Its cardholders are typically required to pay their balances in full each month. Therefore, American Express doesn't necessarily depend as much as its peers do on making money from interest payments.
Instead, American Express gains when its customers spend a lot. That's because it collects what's called discount revenue from the 160 million merchant locations that accept these cards. This totaled $9.4 billion in the latest quarter (second quarter of 2025 ended June 30).
This is a powerful brand in the industry. Its premium card offerings provide valuable perks and rewards to members. This naturally attracts an affluent customer base, benefiting the business greatly.
American Express also rakes in fee revenue
The company's most popular cards, like the Platinum and the Gold, carry annual fees of $695 and $325, respectively. American Express collected $2.5 billion just in the most recent quarter from the fees it charges customers to have its credit cards. This is another meaningful money-making activity.
Combined, fee and discount revenue made up 66% of the company's total in Q2.
