Forget What You Think You Know About American Express

I have worked in the credit card processing industry since I was 21, and while in my early years I was naïve about many things, it was always clear that business owners didn’t like American Express. In fact, many businesses outright refused to accept it! What’s wrong with American Express? Is its bad reputation well-deserved? Let’s take a look.

High Fees and Slow Funding – But Not Anywhere

Historically, American Express charged higher fees than their competitors, making their cards less attractive to merchants. Merchant funding was also a slow and painful process – in 2006 it took a full three to five business days for merchants to receive money from American Express transactions! This in turn led to bookkeeping headaches because transactions and funding were separated by so many days. Not surprisingly, this was a major turn-off for business owners. As if that weren’t enough, American Express also developed a reputation for siding more frequently with the customer than with the business when it came to chargebacks and other disputes.I believe it was a combination of these factors that caused many merchants to decide not to accept it.

Too Little, Too Late? Not So Fast!

As the years passed, American Express was forced to change their business model in order to compete. They lowered their fees, allowed payment processors to fund transactions more quickly, and revamped their dispute process. But old habits die hard, and these changes, called the One Point program, didn’t move the needle all that much. It was perceived as a Band-Aid that wasn’t strong enough to heal the wounds of the past.

And then the shoe really dropped. Costco (yes, that Costco) cancelled its partnership with American Express in 2015, opting to issue Citi Bank Visa cards to its customers instead. This was a huge blow to American Express’s bottom line, as the change impacted approximately 10% of all credit cards in circulation at the time. Why did Costco drop American Express like a hot potato? I believe that, simply put, they weren’t making money off the American Express cards. American Express was caught in a vicious cycle – merchants didn’t want to accept the cards because of perceived hassles and bad history, and consumers didn’t want the cards because merchants didn’t accept them! American Express also had a reputation for being picker than George Clooney choosing a date for the Oscars with respect to which consumers it would issue cards to – too picky, in fact. Costco simply wasn’t making money on the deal.

Big Changes for the Better

American Express responded by dropping rates still further and allowing payment processors like 360 Payments to earn money on top of those rates. It backfired badly. Processors and acquirers often keep most or all of the new difference in rates to themselves as pure profit, so the actual cost to the merchant to accept American Express cards remains relatively unchanged. In many cases, big-name acquirers like First Data, Vantiv, and TSYS actually charge the independent sales organizations (ISOs) that sell for them (like 360 Payments) a substantially higher rate on all American Express transactions. The ISOs are forced to either absorb a massive hit every time an American Express card is swiped (like we do) or pass these fees on to the consumer (like many of our competitors do). There’s no incentive for sales representatives in our industry to encourage the use of American Express cards – that’s unfair, disingenuous, and wrong! This does nothing to dispel the negative stereotypes about American Express among business owners.

The fresh Visa and Costco deal was a rough break for merchants too, despite the fact that most merchants do not realize it. The new Visa Citi Bank Signature Preferred Card has much higher rates for merchants compared to the new American Express rates (in exchange for slightly better rewards for consumers.)For example, the rate charged for using a Signature Preferred Card at an auto repair shop for a $300 transaction is 2.10%, while for an American Express card it is only 1.60%.

Winners & Losers (Hint: You Win)

It’s clear to me that business owners and American Express both lose in this situation. Merchants are still laboring under the delusion that American Express costs far too much compared to the most popular Visa and Mastercard rewards and corporate cards (and it might, but it could be only because their processors are reaping the profits!). Furthermore, they’re now stuck with high-rate Visa, Mastercard, and Discover cards that cost more to process that standard reward and corporate cards. American Express is losing too, and their stock over the last few years proves it. Their card is still discouraged by business owners, their own processing and acquiring partners are stabbing them in the back, and their best pal, Costco, left them for Citi Bank Visa.

In my view, the big winners in this scenario are the processors and acquirers who are making money off of American Express’s past reputation and current plight. That doesn’t seem fair, does it – but what can you do? Start by holding your processor accountable – make sure they are charging you the same amount for ALL credit card types instead of jacking up their rates for American Express. Better yet, switch to a processor you don’t have to check up on – like 360 Payments. We pride ourselves on transparency and honesty – you’ll always know your rates up front, and we don’t believe in junk or hidden fees. If you’re not taking American Express yet, give us a call at 1-855-360-0360 or drop us a line on our website. We’d love to clear up the misconceptions and get you processing right away.

PS – Read more about why 360 Payments is different.

PPS – PCI compliance scan failed? Here’s why.

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