AmEx's Next Conquest: Bank-Issued Cards

Amid an ugly environment for credit, MasterCard(MA Quote - Cramer on MA - Stock Picks) and Visa(V Quote - Cramer on V - Stock Picks) have thrived.

Fresh off a successful antitrust fight against the two rivals, American Express(AXP Quote - Cramer on AXP - Stock Picks) will continue its efforts to emulate one of their main drivers for success: the bank-issued credit card business.

American Express, which had alleged the two companies had conspired to keep it out of the bank-issued card space, settled with MasterCard for $1.8 billion Wednesday. That comes on top of its earlier $2.25 billion settlement with Visa in November.

American Express expects the $880 million in revenue from the settlement it will receive annually over the next three years to provide a nice cash cushion, as more customers have trouble paying their credit card bills. But it will also help the company ramp up its already commenced push into bank-issued credit cards.

"This is certainly a higher margin business and a less capital intensive business," says Dan Davidowitz, a portfolio manager at Polen Capital Management in Boca Raton, Fla., who does not own shares of American Express. "In normal times their lending business is a good business too, it just happens that it's cyclical."

Davidowitz said American Express has had "good growth on that side of the business."

"They would like to now be able to ... have access to customers whether it's internally or through banks. AmEx is purposefully looking at [high] spenders and they'd like to get them directly, but there is some they will get through banks," Davidowitz says. "They wanted to be able to do all of that and now they can."

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