New American Express Pricing to Reduce Merchant Costs

April 27, 2018

American Express has announced a fundamental change to its business model in a move that is designed to increase acceptance of American Express cards. Historically, Amex has attempted to position itself as a premium credit card issuer which has come with higher credit card processing fees than other card issuers. This was based on the logic that the company’s cardmembers typically have higher incomes and spending habits and therefore, merchants should be willing to pay more to accept their cards.

Of course, the high cost of American Express payment processing has led the company to lag behind Mastercard, Visa, and Discover when it comes to acceptance, especially outside the United States, where Amex cards are not commonly accepted. Due to the higher fees, Amex is accepted at 1.3 million fewer locations in the U.S. than Mastercard and Visa.

The company hopes to lower this acceptance gap between their credit cards and Mastercard and Visa by decreasing merchant fees by the greatest amount in 20 years. On average, Amex will lower average merchant fees by 5 to 6 basis points to 2.37%. According to the Financial Times, these lower fees will reduce profits by $585 million.

This isn’t the only step American Express has taken to become more competitive. In 2014, it introduced the OptBlue program, a new merchant acquisition program for small businesses in the United States. Businesses can qualify for lower pricing through OptBlue, which is open to businesses that process less than $1 million in Amex cards per year. Along with discounted interchange rates for smaller transaction volumes, the OptBlue program also offers transparent interchange fees with three flat-fee tiers based on transaction size.

Who Benefits from the Decision?
Typically, swipe fees at a credit card machine for Discover, Mastercard, and Visa range from 1.5% to 2.5%. Merchants generally pay more like 2.5% to 3.5% to accept American Express. By reducing their merchant fees, the company is hoping more merchants begin accepting their cards, especially small and medium-sized businesses that were normally priced out of the market.

American Express has always been separated from other card issuers in the credit card processing landscape with businesses forced to go through extra steps and paperwork to begin accepting their cards. Host Merchant Services makes it easy to begin accepting Amex cards just as you would accept other major cards with a streamlined process and just one contract. With the new business model, you’ll pay less than ever to get access to new customers and improve customer service.

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