Fraud detection
November 8, 2016A brief look at Visa
November 22, 2016 American Express is one of the largest credit card companies in the United States, yet it is common to see the phrase “Sorry, we do not accept American Express” when going into a store or online. You’d figure that a merchant would be more than open to every possible revenue stream that they can bring in and that not accepting American Express (and Discover) is counter-intuitive. Today we examine why.
The simplest answer is the cost a merchant is charged to have the transaction processed, or the interchange fee. That means whenever a customer uses a credit card, a merchant has to pay a fee. All card issuers charge different fees and for some merchants, some cards simply are not worth the money to accept. American Express charges a roughly 3.5% interchange fee, the actual rate varies by the type and size of the business and the number of transactions the merchant has in any given day. Visa and MasterCard are usually around 2-3% and the fee is also different between debit cards and credit cards, not to mention all of the rewards cards fees (merchants are who pays for those rewards).
American Express does not issue debit cards, so all of its transactions are credit cards. Visa and MasterCard have been able to offer more to merchants, by offering a lower fee since they will be able to recoup any lost money by the sheer volume of transactions. American Express (and Discover) markets itself as an exclusive card that the average citizen cannot obtain and thus decide that they can charge a higher rate. That means when you use that card, it is costing the merchant more than if you used a Visa card.
American Express operates on a different business model than Visa and MasterCard. Instead of relying on revenue from interest, their revenue comes from an annual fee and interchange fees. Their clientele tend to be wealthier, which means they have the resources to pay off their balances without incurring late charges and interest. American Express must look elsewhere for revenue, which means those high interchange fees are not likely to go away anytime soon.
As a merchant that accepts credit cards, it is up to you whether you want to accept American Express. For some merchants, it is worth the fee, others it is not. Only you can decide whether or not it is worth it for you.