American Express Makes Biggest Merchant Fee Cut of Last Two Decades
Most people have probably come across this scenario. A merchant says they accept credit cards, you take out your American Express card and they say, “sorry not American Express”. Visa and Mastercard are never a problem. The reason for this is that American Express charges merchants more to process their credit card payments. Swipe fees on Visa, Mastercard and Discover range from 1.5% to 2.5% of the transaction. For American Express credit card the fee is between 2.5% to 3.5%. There’s also tiers so different cards have different merchant fees even within the same platform.
American Express have been able to do this because for a long time they have had a different business model from its competitors. They targeted a wealthier clientele by offering more premium credit and charge cards with high annual fees. Visa, Mastercard and Discover on the other hand, targeted the lower end of the market and relied on interest charges for a good chunk of their income.
Lately those lines have been blurred. There’s new premium Visa and Mastercard credit cards targeting wealthier customers and American Express has card with low fees or no fees and even prepaid cards. We can all agree that having an American Express card nowadays doesn’t have any social status, although you might get some surprised looks with a metal Platinum card.
American Express Lowers Merchant Fees
American Express has been lowering its merchant fees for the last few years, but still charges more than its competitors. And they are still accepted at 1.3 million fewer locations in the U.S. compared to Visa and Mastercard. Back in 2013 the gap was 2.4 million. Now they plan to close that gap even further.
Amex announced last week that the global average of the fees it charges merchants would decline five or six basis points this year, to about 2.37 percent. If it reaches six points, it would be the biggest decline the company has offered since 1998. Recently the decline has been somewhere between one and three basis points.
These lower fees will be an incentive for smaller shops to start accepting American Express credit cards. While that might bring some extra revenue for Amex, they will also be losing revenue from existing merchants that already accept their credit cards. We’ll see how that balances out soon enough, but hopefully we do not see them charging more fees to customers or gutting benefits.
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HT: Doctor of Credit