American Express Outperforms PayPal in Economic Downturn

American Express and PayPal are both financial powerhouses with a significant presence in the market. However, their business models and resilience to economic downturns differ significantly.

American Express issues its own credit cards and runs its own banking accounts, which sets it apart from Visa and Mastercard. It issues its cards to more affluent customers with higher credit scores, providing it with a smaller but more stable market and downside protection during a recession. This business model also makes American Express resistant to interest rate swings, as higher rates can boost the net interest income from its revolving card balances and cash holdings.

In contrast, PayPal generates most of its revenue by charging transaction fees on its checkout services and money transfers. However, its take rate has been declining due to increased competition and a reliance on lower-margin unbranded payment services and Venmo peer-to-peer payments. Its growth in active accounts has also slowed significantly.

Analysts expect American Express' revenue and EPS to grow at CAGRs of 9% and 14%, respectively, from 2025 to 2028. Meanwhile, PayPal's revenue and EPS are expected to grow at CAGRs of 5% and 4%, respectively, during the same period.

The choice between American Express and PayPal is clear: American Express operates a balanced business with a wide moat, while PayPal's moat is shrinking in a fragmented market filled with similar fintech companies. A recession would only be a temporary setback for American Express, but it could irreparably damage PayPal's fragile turnaround efforts.