American Express (AXP) followed in Visa's (V) steps and announced a digital payment and commerce platform dubbed Serve, which enables the consumers to make purchases and person-to-person payments online via mobile phones and at merchants that accept American Express cards. MasterCard (MA) is also planning to launch its own offering for personal payments.

We estimate that American Express derives 73% of our $49.61 price estimate from card transaction and execution fees while Visa derives almost 29% of its $85.03 Trefis price estimate from transaction fees.

It seems inevitable that our smartphones will become our wallets. After all, they have become a key part of our lives. And smartphones have the power to carry out secure and sophisticated transactions.

As is no surprise, many companies are scrambling to be winners in the e-wallet space. Take American Express (AXP). The company has launched a new e-wallet called Serve.

The mobile revolution is spawning a variety of business relationships to attract new customers. The latest is the partnership between credit card holder, American Express (AXP) and the social network Foursquare Labs Inc.

Both companies are capitalizing the growing segment of online purchasing. American Express had roughly $100 billion in online transactions last year. Online spending is growing at a 20% rate, compared to15% for overall spending, as reported in the Wall Street Journal.

Last Friday Warren Buffett said he was anxious to pull the trigger on another large deal -- having only recently completed the Berkshire Hathaway (BRK.A and BRK.B) acquisition of the Burlington Northern Santa Fe Railroad. Since then, prognosticators far and wide have been making suggestions about his next possible moves.

Considering I wrote about the railroads the day before the BNSF announcement, I thought I would share a few ideas, old and new.

Founded in 1950, New York based American Express (AXP) is a leading global financial services company offering card payment products and travel-related services to consumers and businesses across the globe. It is now the third largest player in the U.S. in terms of card transaction volumes after Visa (V) and MasterCard (MC). It also competes with other financial institutions that have credit card services like Discover Financial (DFS) and Capital One (COH).

Founded in 1950, New York-based American Express (AXP) is a leading global financial services company offering card payment products and travel-related services to consumers and businesses across the globe. It is now the third largest player in the US in terms of card transaction volumes, after Visa (V) and MasterCard (MA). It also competes with other financial institutions that have credit card services like Discover Financial (DFS)and Capital One (COF).

What differentiates American Express from MasterCard and Visa is its relatively more affluent customer base, which it maintains by offering generous benefits and reward programs. Since American Express brings higher spending consumers to merchants, it can charge a higher commission (known as the interchange fee) on sales. Also, unlike Visa and MasterCard, American Express only issues charge and credit card products but not debit cards, which have been gaining widespread acceptance over the past couple of years. With these critical differences in mind, we explore the opportunities that lie ahead for American Express in an evolving macroeconomic environment.

Our price estimate is $47.16, which is just slightly higher than the current market price.

Impact of Regulatory Reforms

The Obama Administration in February 2010 passed the Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act which enforces more disclosure about interest rates, caps on service fees, grace periods and also makes it difficult for people under the age of 21 to obtain cards. All this is expected to negatively impact the growth in the number of cards in use but lead to lower net write-off rates and defaults by card members.

The Durbin Amendment, enacted in July 2010, granted the Fed the power to control the levels of this fee. In December, the Fed enforced one such limit - 12 cents per debit card transaction. While this adversely affects the two largest card payments-processing networks Visa and MasterCard, which also issue debit cards, we believe it presents upside opportunity for American Express as credit cards would gain prominence over debit cards, at least from the issuers' end.

Improving Economic Conditions

The macroeconomic conditions are improving in the US, albeit at a slow pace. The unemployment levels are still close to historical high levels but on a downward slope, declining from 9.8% in November 2010 to 9.4% in December 2010. Consumer spending has picked up and so have the corresponding card transactions.

Household purchases, which constitute about 70% of the economy, grew at 4.4% in December 2010, the highest since the first quarter of 2006.American Express' card delinquency rates (the proportion of outstanding balances past the due date to total balances) continues to decline month on month to 2.1% from 2.5% in the previous quarter. Charge-offs (the loans deemed uncollectible and hence, written-off) also declined from 5.2% to 4.4% over the same period. Improvements in macroeconomic conditions hint at more relaxed card-issuing criteria and higher credit limits.

If spending increases more than we currently forecast, this could improve our price estimate. Drag the trend line in the modifiable chart above to see the impact. For example, a 5% increase in annual spending in 2012 per customer translates to around a 2% improvement in our price estimate.

See our estimates for American Express.

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

I first discussed American Express (AXP) here on May 4, 2009, at a price of $27.28, and the stock has continued to progress since, but in choppy fashion.

Fundamentally, American Express continues to improve, as well. Look for the company to report 2011 revenue growth of 7% to 9%, as the U.S. economic expansion progresses, followed by a 5% to 8% rise in 2012.

Capital One (COF) is one of the largest financial institutions in the United States, with banking and non-banking subsidiaries that market a variety of financial products and services. The company specializes in credit cards, home loans, auto loans, banking and saving products. Its main competitors are JPMorgan (JPM), Bank of America (BAC), Citigroup (C) and American Express (AXP).

We have a price estimate of $61.26 for Capital One, well above market price.

With earnings season in full swing, the FOMC meeting on interest rates, the GDP estimate, and housing numbers due out, the coming week is shaping up to be a busy one. So here's a peek at what's on the economic calendar.

Monday

Quarterly reports from American Express (AXP) and McDonald's (MCD) will highlight Monday. Amgen (AMGN), CSX (CSX), Halliburton (HAL) and Texas Instruments (TXN) are also expected to report strong earnings results.