Does This Top Warren Buffett Stock Have the Widest Moat in Payments?

While the investing philosophy was different earlier in his career, Warren Buffett popularized the concept of an economic moat in recent decades. This characteristic highlights the presence of durable competitive advantages. Businesses that possess this are a rare bunch.

In the world of financial services, American Express (AXP +1.23%) certainly fits the bill. But does this top Warren Buffett stock have the widest moat in payments? Here’s what investors should know.

A premium brand and network effect drive success

Berkshire Hathaway‘s $355 billion public equities portfolio is full of quality companies. American Express is the second-largest holding. The Oracle of Omaha clearly thinks highly of the financial stock.

This business’s moat is supported by a powerful brand presence. American Express is the premium player in the industry. It deliberately targets affluent customers with above-average spending power. The result is very healthy default rates. In the second quarter, net write-offs were 2%, half the industry average of 4%.

In the past five years, the average spend per card increased by 34%. Even better, there’s pricing power. The average fee per card rose 77% during that time.

This trend should continue, as the Platinum and Gold cards (which carry higher annual fees) have been refreshed in the past couple of years. Since American Express is known to offer top-tier perks, rewards, and benefits, consumers pay hefty membership dues.

American Express’s moat also comes from its robust network effect. The business operates a closed-loop system that handles issuing and servicing cards, onboarding merchants, and processing transactions. More outstanding cards mean more high spenders, adding greater value to merchants. As more merchants join the network, cardholders find greater utility, as they can spend at more places.

There’s a duopoly at the top

American Express has an impressive competitive position. However, rival payment networks Visa and Mastercard, which have a duopoly industry position, arguably have the widest economic moats in the payments space (and perhaps in the entire corporate world).

This is driven by their ubiquitous reach, with each having billions of active cards totaling trillions of dollars in volume each quarter. They also have incredible network effects.

And their profitability is off the charts. Visa’s average quarterly operating margin in the past five years was 67%, while Mastercard’s was 58%.

But investors have come to expect durable success from American Express. Even in uncertain economic times, the financial gains aren’t letting up. Management expects revenue to grow 10% in 2026. They also forecast earnings per share to increase by more than 14%. This is a fantastic company that still meets Buffett’s standards.