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American Express – the Company and Credit Card Everyone Loves to Hate?

by | Apr 1, 2015

Large successful for profit companies do not inspire sympathy when marketing strategies go awry, stocks drop, or well, for much of anything really.  But seriously, what’s with the American Express (Amex) animosity? (check out Dave Danforth’s Boston Fee Party Put Amex in its Place in the Aspen Daily News). Ouch. Maybe this guy’s app for a card wasn’t approved?

The recent loss of Costco and JetBlue relationships – not to mention the road weary DOJ lawsuit for violating antitrust laws and prohibitive merchant policies (see Zacks Feb 2015, “Will Amex Continue to Skid?”:…), is adding to all the joy.  But is all that merchant animosity really justified?

For years it’s been our experience that many merchants balk at the cost of accepting American Express credit cards when compared to costs for Visa and MasterCard acceptance.  But are overall costs and profit margins really that simple? Are comparisons apples to apples?

Let’s take Danforth’s raging example comparing Visa and MasterCard’s discount rate for a transaction (fee imposed on the merchant to accept the card at the point of sale – a percentage of the transaction)1.2 to 1.5% to that of 4% for Amex.  American Express is a rewards card, and a good one – cost of acceptance for years was a flat 3.5% – cost of a comparable Visa/MasterCard rewards card – about 2.5%.  It’s called a non qualified transaction.  Reward program’s cost money – merchants bear the cost.  You will not wrestle reward cards from the hands of the consumer – they love’em, so card issuers market them.  Heavily.

It’s true, the American Express model is unique from Visa/MasterCard (see the Trefis Team’s description for both in Forbes – excellent). It’s also true that credit card processing is big business.  Loaning money (which is what banks do when they issue credit cards) is also, well, risky business.  Risk vs. reward business model and all that stuff.

Keep in mind that American Express card members are fiercely loyal.  Amex has been ranked #1 for the last 7 years in overall customer satisfaction, and their card wielding members spend a lot (the average Amex purchase is $150 vs $50 for Visa/MasterCard users).  Merchants like customers who spend more – don’t they?

So what’s a merchant to do?  XBS advises.

1 – GOOD NEWS!  American Express OnePoint and OptBlue have arrived! These programs mark a substantial change in the old Amex pricing model – with new, lower interchange rates AND combined monthly statements for all deposits and credit cards – further lowering overall monthly costs.  We’ve been converting our merchants like mad – call us – we’ll do this for you too.

2 – Customers are valuable.  Try not to alienate.  Accept all payment forms at the point of sale.  Do it with a smile – not a lecture on merchant fees or a request for different form of payment.  Yawn.  What’s next? – a rant on your employee benefit costs? Put your consumer shoes on.

Payment processing technology and flexibility has greatly enhanced merchant ability to grow their business through increased sales and revenue.  It brings substantial value and customer satisfaction to today’s market place.  Its costs, like all big business, fluctuates with provider increases, government regulation and acceptance methodology, amongst other things.  Payment processing is complex, rapidly evolving, with ever increasing options, and merchants and consumers will of course bear the cost of the developing technology – as well as the remarkable benefits.

Stay educated and lean.  Control costs.  Grow.

That’s what we’re here for. 

Love Hate Amex Relationship!