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Why Discover is no American Express

American Express stock trades at much higher multiples than Discover. Here is my attempt to understand why.

Not only American Express is a bigger company (in terms of revenue or net income), but its stock also trades at much higher multiples than Discover’s. American Express licenses its brand to other issuers (e.g. Square issues Amex cards for its sellers) and sometimes relies on acquirers to ensure acceptance at smaller merchants, but at the core, “three-party schemes” make money on both sides of the transaction(charging merchant for card acceptance, and charging cardholders all kinds of card-related fees) and everything in between (e.g. lending to cardholders). However, if you look at loan performance metrics, then you will notice that Discover has the second highest (and Amex has the lowest) charge-off and delinquency rates amongst the largest U.S. credit card lenders.

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