American Express Outshines PayPal in Economic Downturn

PayPal and American Express are two financial giants with vastly different business models. While PayPal's revenue comes from charging transaction fees, American Express earns from net interest income on its revolving card balances and cash holdings.

American Express operates in a niche market, issuing credit cards to affluent customers with higher credit scores. This selective approach gives it more downside protection during economic downturns.

PayPal's business model, on the other hand, is heavily reliant on its lower-margin unbranded payment services and Venmo peer-to-peer payments. The company faces significant challenges in maintaining its growth rates due to increasing competition and declining transaction fees.

Analysts predict American Express' revenue will grow at a compound annual growth rate (CAGR) of 9% from 2025 to 2028, while PayPal's is expected to increase by only 5% during the same period. The two companies trade at different valuations, with American Express trading at 19 times this year's earnings and PayPal at 11 times.