Better Stock: American Express (AXP) vs. Paypal (PYPL)

While American Express Company (NYSE: AXP) and PayPal Holdings Inc (NASDAQ: PYPL) are rightly thought of as similar companies by investors, the two still have very different business models, valuations, and expectations. This can make true comparisons difficult when looking for ways to invest in payments or fintech companies. With that in mind, let's examine both companies closer to see which is more deserving of your hard-earned investment dollars.

American Express operates a closed-loop credit card system, meaning that it issues its own cards and then facilitates the payments on those cards. This is similar to Discover Financial, but different than Mastercard or Visa which only facilitate payments on cards that other institutions issue. Departing American Express CEO Kenneth Chenault believes this business model gives the company major advantages over other card issuers. At a recent investor conference, he said:

"This is why I believe a diversified integrated business model such as ours, which includes both issuing and network businesses across multiple geographies, products and customer segments offers major advantages ... Our closed loop, which combines information from both our issuing and network businesses gives us access to data that is both broad and deep. Increasingly, the information we analyze in the age of Big Data is a critical ingredient in building value for both card members and merchants."

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Source: Fool.com