American Express is Changing their Approach to Merchant Services

Within this complex world of payment processing, one major card network is taking a different approach to merchant services. American Express’s new CEO, Stephen Squeri, announced earlier last quarter that AmEx will be reducing their global merchant discount fees (“swipe fees”) by 5-6 basis-points, which could be their largest decrease in price in the last 20 years. In an era where processing fees have been constantly increasing every year, this may be a breath of fresh-air for many merchants.

Many are skeptical about the change in philosophy: some believe it is too little too late; some believe it will end up hurting the end consumer and their service/rewards; others believe the reduced fees will affect shareholder return. But I praise AmEx for this move. It is a bold move in a world where the other major networks have only done the opposite over the past 10+ years (except when the government intervenes).

AmEx’s goal from this planned reduction is to alter their image as the most expensive card network in North America. They are hoping this reduction helps them close the gap of merchant acceptance between themselves and the major players, Visa/MC, who have over 1.3 million more merchant locations. To me, this shows an aggressive approach to merchant acceptance and that they will do whatever it takes to win new business or keep existing business.

Is AmEx that much more expensive?
When you look at the data, AmEx many not be that much more expensive than the other card brands. But to the average merchant, they appear to be. Yes, when you compare Visa/MC to AmEx costs, they are vastly different. However, this is an unfair comparison, as a large portion of Visa/MC transactions are debit cards, which do not relate to AmEx’s card offerings of high-end consumer and corporate cards. For a proper apples-to-apples comparison, you need to compare Visa/MC premium rewards and super premium card costs to your AmEx costs. While your negotiated rate with AmEx may vary, here are some potential costs on the Visa/MC side for a Retail transaction:

  • Visa Premium/Super Premium Retail – The current (as of Oct 2017) CPS Rewards 1 and Signature Preferred Retail rate is 1.65% or 2.10% (plus 10 cents) depending on the type of card. Add in the 0.13% Assessment Fee and the total cost before processor fees is 1.78%-2.23% (plus 10 cents).
  • MC Premium/Super Premium Retail – The current (as of Oct 2017) World Merit III rate is 1.77% or 2.20% (plus 10 cents) depending on the type of card. Add in the 0.12% Assessment Fee and the total cost before processor fees is 1.89%-2.32% (plus 10 cents).

These Visa/MC premium card costs are more closely aligned with what AmEx charges their largest merchants, but they may still be higher. This is where the proposed plan to reduce their overall discount fees by 5-6 basis-points may make a difference for many merchants. For perspective, a large merchant doing $100MM/yr in AmEx could save $50,000/yr in costs just from a 5 basis-point reduction. There is a catch, though. AmEx has not disclosed how they plan to implement these reductions. How soon will it start? Which merchants will they target? Do some merchants receive more or less? These questions are all still unknown.

Until then, consider this a welcomed change for a merchant community that has suffered through many rounds of increased interchange/discount fees from many of the major card networks and processors.

You can understand the premium you pay for AmEx cards by calculating the weighted average cost of Visa/MC credit cards versus AmEx cards. This information is critical in negotiating with AmEx. For help determining if your AmEx discount rate is above market, you can email me at to benchmark your fees against the top 10% of your peers.

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