I wanted to write an article on how Venmo makes money, but that meant I had to explain how a credit card company works! American Express is interesting in this space primarily because it is not one thing, but three things.

It is Visa, it is Capital One, and it is Bank America. Visa is a processor. The Banks created Visa in to facilitate these transactions.

American Express created its charge card at the same time. MasterCard happened 8 years later.

How Does American Express Make Money? – How Does It Make Money?

Visa and MasterCard take less than half a percent whenever you spend on their cards. Capital One are the guys running your account.

Here’s Why American Express Can Charge More Than Visa or MasterCard -- The Motley Fool

They issue you with a card, and give you customer service. For this privilege they take 2 cents on the dollar. Arguably, credit cards may have marked the end of the capitalist system, splitting the need to work from the desire to buy.

This is where the bank, or lending, bit of it comes in. Data from Australia, Europe and the US is that when swipe fees get cut, the retailer keeps it. Annual Percentage Rate might make sense if you borrowed a single sum of money for a year and paid it back all in one go. This is the Bank America part — you have just taken out a loan with them and it costs interest. American Express, being all three of these things, earn all three of these lines: Because American Express has a big charge card business, unlike other card companies, it makes more money from the spending than from the lending.

This is attractive, American Express versus Credit Cards, because lending can be risky. When someone loses their job they are going to struggle to pay off the card and then zap, money heaven and a nasty experience for everyone.

As an investor, stay away from lenders and credit card companies when people start losing their jobs. You may doubt it, but seriously, the banks want you to keep your job as much as you do.

How Do Credit Cards Work | American Express India

It stinks for them and for you. Recently Amex has been struggling because Costco ditched them from their Costco card. Amex has just sold the remainder of this portfolio to Citigroup. I pay off my credit card balance automatically, and twice a year I claim a voucher to spend at the DIY store. Otherwise perhaps how Microsoft is going to make money from LinkedIn is more up your street?