American Express

Like many financial institutions, American Express took a hit to their bottom line in 2020 as a result of their increase in loan loss reserves, as they expected a large number of borrows to default on payments due to the pandemic.

Fortunately, due to the massive amount of stimulus put into the economy by the government, a lot of consumers were able to pay off credit card debt and as a result, the loan loss reserves set aside by American Express and other lenders were likely overstated.

American Express earns its revenue through two main segments: interest income, which is earned from an interest rate charged to their credit card holders, and non-interest income, such as merchant fees charged to businesses as well as yearly fees that are charged to owners of their cards.

The highs and lows of American Express’ income:

Highest:

• 2019 = $6.9 billion

Lowest:

• 2020 = $3.1 billion

American Express currently has a market cap of $132 billion.

Discover Financial

Discover Financial earns its revenue from two main sources: Digital Banking and Payment Services according to their annual filings. Their Digital Banking segment includes interest income from credit cards, student loans, and personal loans. The total amount of revenue brought in from interest income in 2020 was $11 billion.

The Payment Services segment includes the fees charged for the use of their payment network.

Their net profit was down substantially in 2020 due to large write-offs of loans as they expected a large number of borrowers to default or not be able to pay their loan balances on time. Over the past 10 years, Discover has earned a net profit of roughly $2 billion per year, with that number slowly increasing to $2.7 billion in 2018 and $2.9 billion in 2019.

The highs and lows of Discover’s net profit are:

Highest:

• 2019 = $2.9 billion

Lowest:

• 2020 = $1.1 billion

Discover Financial currently has a market cap of $37 billion.

Mastercard, Inc.

Mastercard earns its revenue as a global payments company that allows consumers and businesses to use digital payments. They charge fees to the merchants that use their payment systems and they’ve been trying to grow the portion of companies abroad that use their services.

Compared to other digital financial services companies their profit has grown substantially over the past 10 years. In 2011 the company earned $2.3 billion and in 2020, even with the pandemic, the company earned $6.4 billion. The company’s main competitors include VISA as well as American Express who uses their own digital payment network.

The highs and lows of Mastercard’s net profit are:

Highest:

• 2019 = $7.9 billion

Lowest:

• 2011 = $2.3 billion

Mastercard Inc currently has a market cap of $362 billion.

PayPal Holdings

PayPal’s revenue has been growing faster than almost any other financial services company as more people have been purchasing goods and services digitally and remotely versus in-store payments. In 2020 the company brought in $21 billion in revenue compared to $8.6 billion in 2013. The company was spun off from eBay in 2015 and has since been growing rapidly.

The company’s revenue comes from transaction revenues which are fees that are charged to merchants and customers whenever a sale is completed on their payment services platform, along with value-added services which consist of referral fees, subscription fees, and other additional services that are offered to merchants and customers.

The highs and lows of PayPal’s income and revenue are:

Highest:

• Revenue: 2020 = $21.4 billion
• Income: 2020 = $4.2 billion

Lowest:

• Revenue: 2014: $8 billion
• Income: 2014: $419 million

PayPal currently has a market cap of $318 billion.

VISA

VISA’s income and revenue have been going up steadily over the past 10 years. In 2011 the company earned $9.1 billion in revenue and $3.6 billion in net profit. In 2020, despite the pandemic, the company earned $21.8 billion in revenue and $10.8 billion in net profit.

The growth in earnings and revenue is a result of a dramatic increase in digital payments volume and the number of transactions involving consumer credit cards and debit cards has been increasing consistently over the past 10 years. The number of VISA transactions in 2020 was 140.8 billion globally.

VISA has been competing with other major payment networks to build a digital payments infrastructure in major foreign countries, mainly China. In 2020, more than 50% of their revenue comes from international payments and with many other countries growing faster than the U.S., likely, this portion will only continue to increase.

The highs and lows of VISA’s income and revenue are:

Highest:

• Revenue: 2019 = $22.9 billion
• Income: 2019 = $12 billion

Lowest:

• Revenue: 2011 = $9.1 billion
• Income: 2011 = $3.6 billion

VISA currently has a market cap of $517 billion.

This article has been reprinted with permission from William Douthat´s LinkedIn page.