American Express (NYSE: AXP) is one of Warren Buffett's favorite and longest-held stocks. It hasn't always been a market-beating investment, but this well-established financial giant is gaining momentum, and it may just be entering its prime. Should you add it to your portfolio?

The financial services company owns one of the four large credit card processing networks in the U.S. The others, of course, are , Mastercard, and Discover, although Discover is being acquired by Capital One.

But American Express is different from Visa and Mastercard because it runs a closed-loop model, which means that it acts as its own funding bank. The other networks partner with banks to fund credit card lending, which is why their credit cards are approved by their issuing banks. Under this model, Visa and Mastercard don't have much exposure to consumer debt -- they just take swipe fees on the transactions. The advantage for American Express is that as a bank, it has loads of cash deposits that it can use as funding, and that provide it with net interest income. In 2023, its net interest income rose by 33% and accounted for 22% of total revenue.

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Source Fool.com