American Express is a global financial services institution whose main offerings are charge and credit cards. American Express earns about half of its revenue from merchants, charging them a discount rate for each transaction processed. The other major source of revenue is cardholders themselves, who pay annual fees and interest charges on balances. During 2010, American Express posted a net income of $4.1 billion from its total revenues of $27.8 billion.
American Express announced that it would revive its share repurchase plan. The announcement came after obtaining approval from the Federal Reserve after American Express passed stress tests. American Express did not announce how many shares or how quickly it would repurchase shares. However, despite the positive news for investors, American Express also announced that its legal liabilities would exceed the amount it had set aside already, with up to $500 million in additional legal costs.
American Express competes against companies in the general purpose payment card industry, as well as against all other forms of payment. Its top competitors within the general purpose payment card industry include Visa (V), MasterCard (MA), and Discover Financial Services (DFS). American Express's advantages include its low exposure to subprime cardholders (based on credit score), thus reducing risks of write-offs when cardholders do not pay their bills. American Express also owns nearly half of all transaction volume in the U.S. Small Business niche, which is estimated to charge nearly $200 billion on cards a year.
MasterCard (MA): MasterCard has a strong brand loyalty and name recognition through its "Priceless®” marketing campaign. It has also experienced rapid growth as it has pushed to switch from paper to a fully operational electronic system. American Express has an advantage over MasterCard because it has direct relationships with both cardholders and card issuers, and is not affected by regulation of interchange...