Visa and American Express: Two Paths in Payment Industry

Visa Inc. (V) and American Express Company (AXP) are two major players in the payment industry, but they have distinct business models that set them apart.

Visa does not lend money to its customers, instead it acts as a middleman between banks, charging a small fee for each transaction. This approach allows Visa to carry almost no credit risk and maintain high margins.

In the past year, Visa generated $44 billion in revenue and turned it into roughly $22 billion in profit. The company has also continued to grow, with revenue increasing by 14% and earnings per share rising slightly faster.

American Express, on the other hand, runs a closed-loop system, issuing cards, carrying balances, and operating networks. This means it earns both lending spreads and fees, but its margin is lower as a result.

Despite this, American Express has also seen growth in earnings per share, rising nearly 16% over the past year. The company's shares are trading at around eighteen times earnings, while Visa's are near thirty-one times earnings.