Better Buy: Square, Inc. vs. American Express

Payment-processing company Square (NYSE: SQ) has shown tremendous growth over the past year or so, and its stock price has roughly tripled as a result. And credit card giant American Express (NYSE: AXP) has rebounded nicely after losing its Costco partnership and is growing strong once again. Let's look at the business models of these two companies and see which might be the better addition to your portfolio now.

Square's core business is making payment processing systems for small businesses, and earning a profit from transaction fees. When a merchant takes a card payment using Square's hardware, Square gets a percentage of the transaction. From this "swipe fee," some of the proceeds go to the card network (Visa, Mastercard, American Express, or Discover Financial Services), while some goes to the card's issuing bank, and Square gets the rest.

Image Source: Square.

Source: Fool.com