Merchants Allowed to Steer Customers Away from AmEx

As we noted in a post last month, AmEx was told on May 5th by Judge Garaufis of the U.S. District Court for the Eastern District of New York that it cannot enforce its anti-steering rules.  AmEx was seeking a stay of this ruling pending its appeal.  The stay was denied  this past week.  This paves the way for merchants to steer their customers to less expensive Visa, MasterCard and Discover cards starting July 1.

Steering consumer to less expensive tenders is not an easy task.  First, most merchants do not know the effective cost of each the card brands.  This is complicated by the fact that AmEx does not issue debit cards, in contrast to Visa and MasterCard.  So comparing the AmEx discount rate to the effective “credit” rate for Visa/MC can be complex.  Given the rise of Visa/MC rewards cards and the corresponding increase in interchange, Optimized Payments has seen the narrowing of the differential between Visa/MC “credit” cards and AmEx cards over the last decade.  In fact, AmEx tends to less expensive than its peers in small ticket verticals like vending, parking, QSR and business to business segments.  AmEx continues to be more expensive on average in other verticals like retail, travel and e-commerce.  Secondly, creating signage and training personnel to tender steer can create customer confusion and friction.

Having said this, effective steering strategies can be implemented but they need to be tailored to the needs and nuances of a merchant.  Here are some ideas (some are not specific to AmEx):

  • Merchants with high average tickets and high credit card usage can offer discounts for debit cards…Ikea and Allegiant Airlines already do this.
  • Merchant with high AmEx usage and a high AmEx premium (over Visa/MC “credit” cards) can offer discounts, rebates, or other special offers to induce customers to switch to lower cost cards
  • Merchants in the travel industry where AmEx usage is high can offer “soft” benefits like upgrades, more miles/points, early check-in, late check-out, free wifi, etc. when a lower cost card is used

Note that merchants aren’t allowed to charge customers more for using the AmEx card – though they can offer a discount for using a non-AmEx card.  Also, merchants aren’t permitted to disparage AmEx or mischaracterize its brand.

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