Why Do Merchants Dislike American Express?

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I like my American Express True Earnings Costco card because it gives me 1% cashback, no cap, on everything and 3% at restaurants (though that was trumped by my Citi mtvU card with 5%) and 2% on travel. It’s my backup card when another one doesn’t supersede it (like the Citi mtvU card) with a better offer because the cash back from American Express doesn’t have an annual cap whereas other cards do. However, if you’ve noticed, American Express (and Discover) seems to always been the odd card out when you go to a lot of merchants and while I’ve always heard it was the fees, I wanted to dig a little deeper to find out why Amex was so hated.

According to the North Carolina Office of the State Comptroller and this Schedule of Fees document, a $100 transaction on a VISA card results in fees of $1.62. MasterCard clocks in at $1.80 and American Express comes in a $2.19 (this is for the “best government rate,” whatever that means)

How does this compare to someone like PayPal? If you have their lowest merchant option, sales less than $3,000, you’re looking at fees of 2.9% plus 30 cents. So on $100, you’d be paying $3.20; more than Visa, MasterCard of American Express. (If you use Google Checkout, it’s fee free until the end of the year)

Anyone know why merchants hate American Express (and Discover)? Is it just the fees?

{ 128 comments, please add your thoughts now! }

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128 Responses to “Why Do Merchants Dislike American Express?”

  1. There are a few reasons.

    First and foremost, most people have a visa card, and if they don’t then they have a mastercard. Both cards are processed on the same network, so you only need one merchant account and you can accept both types of cards.

    The Novus (Discover) and Amex networks require their own merchant accounts and are processed seperately. So in order to accept them, you have a higher up front cost right off of the bat, plus the fees are higher.

    On top of that, Amex doesn’t get you your money as fast as Visa, Mastercard, or even Discover. It can take a few extra days to a few extra weeks depending upon your sales volume before the money you charge actually appears in your bank account.

    • Scott Sanders says:

      Okay, as an ex- Amex network development spcialist, I feel the need to jump in on this and clarify some erroneous comments made by Blane as well as in the original post topic…Having no loyalty whatsoever toward Amex (I no longer carry Amex in my wallet) I can still at least explain a little of how the industry operates.

      There are many misnomers as to why merchants may attempt to dissuade a customer from using a specific type of card, be it Amex, Discover, VISA, ets. Most of the merchants practicing dissuasion are basically “ignorant” of the statistics about card spending habits. Secondly, many do not understand how the card industry is segmented by retail, restaurant, lodging and then a multitude of charge volume tiers within each of these categories. Any variations in charge volume as well as merchant category will dictate the actual fees assessed by the card companies.

      For example, a retail escablishment with merely $10,000 annual Amex charge volume may be assessed a rate as high as #.5% (hypothetically) whereas a retailer with $200,000 in Amex charge volume may only be assessed a 2% rate. The same applies within each industry category as well as across the board with all card companies.

      There are two primary differences or distinctions that permit VISA/MasterCard to come in on a lower rate structure. The first component is what is called an interstate rate, the fee within the overall rate that is assessed for carrying the data across their network. The balance of the fee is their stated profit for simply being in business.

      In other words, a VISA transaction may have a .75% rate (within the overall fee) for handling the transaction within the VISA network. A yet even higher interstate rate is assessed to the same merchant for running an Amex transaction across the VISA network. Of course this is pure gravy profit for VISA because it costs only pennies for them to hand the data off to Amex. Additionally, VISA/MC typically fail to inform the merchant that there is an alternative for the merchant. The merchant could set their POS device up to dial directly into the Amex network, hence, avoiding this extra fee charged by VISA. It is referred to as Direct Processing.

      The second component affecting the rates (cost of doing business with card compamies) is the pay schedule. VISA/MC pay out in a typical two day turn-around. Amex pays out in a typical three day turn-around. Amex will pay out in as fast as 24 hours if the merchant wants to pay an additional fee (typically) about .50% higher. Also, if the merchant is processing Amex through the VISA network (remember they are now paying a higher rate for VISA to process the Amex transaction) then they are also seeing a delay of at least one day before they get their money from Amex. This is out of Amex’s control. Again, the merchant should be more conscientious in doing their homework before agreeing to process Amex through a VISA terminal.

      Lastly, but most importantly, a truly savvy merchant will easily understand the statistics that are compiled within the card industry and can make their card acceptance policies with a more informed decision. Historically in almost every retail, restaurant, or lodging transaction, the Amex cardmember (merchant customer) spends significantly more per transaction that a VISA/MC holder. This is due to the demographics of the wallet and who the card companies are targeting as card holders. Amex typically captures a more sophisticated cardmember based on socio-economics such as income level, residency, spending patterns and other cards carried in their wallets. When I was sith Amex in the 1990s, they coveted the largest database of consumer spending in the world. They know how to select their cardmembers whereas VISA/MC will issue a card to anyone that breaths.

      So, a savvy merchant will understand the following and appreciate the economics. Using hypothetical but realistic numbers…Typical retail scenario: Customer enters an establishment and spends 45 minutes shopping. Some of that time is spent taking up the employees attention, or maybe not. They walk up to the register and make a $400 purchase in one transaction and the retailer pays Amex 2.75% ($11.00) for that transaction. The profit for the retailer on a $389 net transaction may be 50% ($194.50)

      Now, a typical VISA card holder comes in, spends 45 minutes and they walk up to the register and make a $150 purchase. The retailer pays VISA 2% (($3) and ends up with a net transaction of $147. The 50% profit on the transaction will be $73.50.

      The question now becomes…which customer is more profitable for the retailer? Now, a defeatist attitude might say “Well, I’ll just convert that Amex customer to a VISA transaction and make a more significant profit still”. However, there are two variables that come into play here…

      First, most shoppers predetermine ahead of time exactly how they intend to pay for their purchase (basing this on personal factors) so they therefore are selective about how much they spend and..where they spend. If an Amex cardmember sets out to make a $500 purchase on their Amex card (wanting the pooints or maone management features of the card) they A) look for the Amex sticker on the merchant window – no sticker could mean no shopping and B) then determine how much they are willing to spend based on the method of payment.

      VISA/MC assign spending limits to their cards, Amex does not. This has a huge impact on cardmember spending and…their ability to spend and pay.

      So, if they come to the counter and the merchant says “We prefer VISA or MC”, the customer has a decision to make: either put the merchandise back, spend less, or make the purchase through a method they had not originally planned on. Let’s say the retailer gets the customer to use VISA and buy the $400 of items. They may never see that customer again after that one transaction. Here is why…

      How many of us want to be told how we are to make our buying decisions? What method of payment we must use, and possibly therefore how much we can purchase? Statistics say very few folks tolerate more than one instance of being dictate how to pay for their merchandise/food/travel, etc.

      So, higher rates do not also translate into less profit for the merchant. The merchant does have options: Direct processing (lower Amex rates), and attempt to attract more Amex customers (due to their higher spendng abilities).

      Iknow the above information may be difficult for some to swallow but the industry statistics speak loudly. VISA has been trying for the past 15 years to capture the Amex card market and turn these stats around but as long as a cardmember has the ability to determine their method of payment, earn and redeem valuable loyalty points (awards), receive cash back incentives, and use the Amex card as a money management tool, then VISA/MC have a long haul ahead still.

      Hope this helps!

      Oh and by the way – Amex does not charge a monthly merchant account fee – that may be coming from VISA or MC for handling the Amex transaction.

      • JG says:

        Wow – That answered my questions. I do think its possible, however, that as VISA/MC increase their market share/limits & Amex lowers its standards, the distinction may no longer matter… so Amex will have to lower its fees sooner or later.

      • harold says:

        Scott, great answer. Very informative. I always knew this general info but not specifics. I know many will bash the idea of the AMEX customer being a better customer, but you are absolutely right. We are big time AMEX users and my wife and I don’t frequent many businesses near us because they make us use visa or mc. Very true. The nicest Restaurants, spa’s, clubs, all accept AMEX. I do often ask the local mom and pops that do accept AMEX if they would rather me just use a debit card. I do this in appreciation of them accepting the AMEX. Nice people. Thanks again Scott.

      • Coitus says:

        AMEX is now 3.5% per transaction. Visa, MC are 2.95 and 3.25.

        We currently have no ‘surcharge’ to make up for increased cost but soon will have price adjustments…

      • Kate says:

        No customer has ever walked out when I told them I don’t take American Express. EVER.
        The fees are significantly higher for small businesses that is why larger businesses take them and we don’t.
        They spend more because they are more affluent, NOT because they have an American Express card.

        • Frank says:

          I only use AMEX rarely do I use my Visa, and have walked out of numerous businesses because they do not take AMEX. My monthly reumbursements from that card is nearly $30k. I spend $200 to $600 every time I take clients out to eat, or golfing, even bowling. Who is losing out? The silly small business or AMEX. I still spend that money, just at another business. Think about that the next time you tell someone “i dont take AMEX”… Not smart..Not smart

        • Bill says:

          I have walked out if they don’t take amex. no good reason, in this economy, to not take it.

        • tim says:

          If they dont accept Amex I don’t buy there. I have walked out. I carry a Visa (as emergency only and we are talking I either eat or starve. I maybe rack up $100 in a year on Visa) Everything else $40+ goes on Amex, and cash haha I dont use. So in short I have walked out before.

      • Daniel says:

        A lot a good info, quick question tho; where did you get your information? Do you have a reputable website you can point me towards?

      • Anonymous says:

        Excellent answer, except one quote ‘The profit for the retailer on a $389 net transaction may be 50% ($194.50)’. You’re not wrong, but the post is more tech-talk than business-talk. Most small mom-pop businesses do not make anywhere near 50% due to higher wholesale costs without bulk-buy discounts, 20-30% is more typical, with a 30-day term (to pay the bill). Large corporate chains easily make 50%-100% because they go beyond just bulk-buying. They invest in house-brands for exclusivity, cost-control, and lots of delayed billing (like Macy’s ‘Club Room’ sweaters for $15 using your new Macy’s card, for example). But some businesses (big or small) in weak industries are lucky to just break-even and scrape enough revenue to get employees paid and qualify for another loan, happily offered by Amex & Visa. Credit co’s are crack dealers to both consumers & businesses.

    • Scott Sanders says:

      There is no card company on the market that take more than 3 days for pay-out to the merchant. This person (above) must be on a fraud policy where they have submitted too many fraudulent transactions. The card company will then (by contract) hold the money for an extended period. This protects them against intentional merchant fraud abuse,

      Again, Amex pays out in 1 to 3 days.

      Secondly, due to a federal lawsuit brought by the government against VISA/MC for pretending to operate as separate companies yet working together to prevent Banks from issuing Amex to their customers, merchants now have distinctly separate merchant accounts for VISA vs MC.

  2. Gladys says:

    Amex charges a monthly merchant account fee and in addition about 2.75-3.00% of the sales price. That’s what I don’t like about them.

  3. mapgirl says:

    My parents take credit cards at their gas station and there is no distinction with AMEX vs any other card. Due to the nature of the gas franchise business, there is a delay in the transferring IN of funds (primarily because there are also transfers OUT for gas shipments).

    So at the retail level for gas stations, it doesn’t matter if you pay with one or the other. The franchisee still gets their money and it’s tagged as ‘credit cards’ not with one card name or the other.

    For individual stores, that’s a whole other business I guess. The main thing as I learned while doing some biz dev for my parents, is to shop around the credit card processing company. The fee schedule is radically different from firm to firm. You have to know your credit card usage volume by card and price bids accordingly.

    And if you want no questions about money and fees, buy an ATM for $5-7K, put in a wireline and clearinghouse, and take cash only. There’s a restaurant chain in the area that does this. It drives me bonkers, but I try to plan ahead or just borrow cash from my friends when we go there. As much as it bugs me, it’s smart on their part! It’s a pure cash business!

  4. Tim says:

    I don’t like amex, because they aren’t everywhere you want to be.

  5. Moneymonk says:

    I hear that AMEX do not pay merchants if a user disputes the transaction. I know small business owners that do not take AMEX b/c of this. AMEX is known for withdrawing the funds of of business accounts if customers dispute the transaction.

    • Frank says:

      That is not correct. That is someone trying to scare you

      • Brad says:

        American Express does take the money out of your account then you have to fight for it back, Frank your Wrong. Small business hate AMEX why, they dont pay on time, they hold more money back, VISA and Master Card have fund deposited the next day, not like AMEX that does not have a consistent program. I left AMEX for Six Years, and still managed without AMEX, I just started taking it again, and now it took over 10 days to get paid. We are no longer accepting this card which has no benifits for Small Business owners.

        • Jenna Steel says:

          Am Ex DOES take the money out of your account and play the sweeps (see banking policies). Even when they KNOW the merchant is in the right, they still take 90 days to return the money to the merchant when they shouldn’t have stolen it in the first place! Unless Am Ex has changed it’s pre-presentment policy in the last few years, they are still the WORST option for small business. Billing less than 3k a month thru AmEx I had to devote a FULL time person to dealing with their nonsense. In 11 years, i have never lost a chargeback, but people will still try and get out of paying for their items. It costs them nothing to fraudulently lie to AmEx.

          In fact, I had a business customer tell me it was company POLICY to do chargebacks on all bills over 5k. He said it cost him nothing and the percentage of bills he didn’t have to pay was over 10% that way.

          Why isn’t there even ONE merchant service who favors the merchant anymore?

  6. GP says:

    Both Amex and Discover seem to clear more slowly than Visa and MasterCard. Our salon has used two different merchant accounts and we were always frustrated when trying to reconcile our banking transactions with our daily sales.

    For example: If we had $1,000 of credit card transactions on a given day we would three separate deposits over the following days one for Visa/MC and then two, later deposits for Amex and Discover. This makes it much more difficult for us to reconcile our receipts… all because of the occasional non Visa/MC user.

    We’ve seriously considered banning Amex and Discover.

  7. credit card analyzer says:

    I agree, American Express is slower, but it’s wonderful in the point of cash back rewards. Waht’s more, I got used to it and do not give so much notice to slight processing inconveniences. I responsibly pay my bills and so I haven’t had problems so far.

  8. Aaron Crow says:

    American Express DOES hold Pay Outs for 3 Days or More… I have never commited fraud nor am I flagged. I just spoke with them about 5 minutes ago and they told me the FASTEST payout time is 3 days.

    This is the year 2008, We are in the electronic age, Holding checks / credit card payments is a thing of the past. As of today my company will no longer accept American Express.

  9. Vman says:

    We just had a problem with American Express that is totally unethical as far as I am concerned. We have had orders not being approved over the last week or so and really didn’t realize what was going till a customer called us. She called her American Express Card provider who went on to tell her that our account was canceled. News to us!!!!!

    I called our Merchant support who went on to tell us that it was canceled but she was not at liberty to tell me why and that it’s in their contact that they can do so.

    I later find out that it’s because we had a customer chargeback an $800 order where we had proof of address matching, delivery and even a signature from the customer because it was sent insured. Still American Express refused to reverse the call and we threatened to get our lawyer involved.

    Now even if it’s acceptable to cancel a merchants account is it right to do so without warning and have us find out a week and a half later. We are trying to make a living and this is what they go and do to us. To top it off our lawyer is outraged because we have all the proof needed to show that the sale was a valid sale and they were scamming American Express yet they choose to still support the customer.

    This is not over by any means but I am not sure we would ever use American Express again. Thats the way they treat their merchants????????

    • Louis says:

      Google checkout did the same to me 2 years ago. I had proof of tracking, an invoice, proper contact information.

      It taught me a good lesson. Don’t just listen to what the representative says to you as they nod and smile and tell you to sign the dotted line and “not to worry about X, X rarely happens.”

      Read every god damn word of anything you sign, ESPECIALLY documents related to HOW YOU ARE PAID. You should think really hard as to whether you can afford to take on extra risk.

      There are tons of merchants who accept AMEX, who have for a long time, without any issue. However, their agreement still leaves the merchant open to being reamed in the future. I’m a small businessman who started from humble beginnings, no big loans or venture capital. I can’t afford to be reamed.

  10. Sales says:

    I strongly agree with “American Express DOES hold Pay Outs for 3 Days or More… I have never commited fraud nor am I flagged. ”

    We have been doing business with Amex for 5 years now and they always take 3 days. In our type of business that is a rope around our neck since our ticket items are over 1000 dollars.

    Although I do agree that there are more clients making bigger purchases with Amex than Visa.

  11. Wayne says:

    Amex canceled ours and according to the letter every business line of credit account – so we will now be canceling our merchant account with Amex in retaliation! I believe Amex is on the verge of financial collapse so they are trying to cut out any possible credit delinquencies.

  12. JC Music says:

    I agree with Scott Sanders. Easily AmEx is misunderstood by old data. It may take a meeting with an AmEx rep, but they will definitely work with you to establish an account. In the music business, our customers spend big on instruments and lesson/studio time. For 3 years, we had customers complain that we didn’t accept AmEx. Now we do, and our customer base has increased. Almost 75% of our customer base pays with AmEx. One thing I like both as a merchant and consumer, is AmEx is the only card company that still requires a hand signature on the receipt. This really cuts down on fraud. And AmEx has a far superior corporate card program in my opinion.

  13. Kurt says:

    We take AMEX because we have to. We avoid it at all costs because of how expensive it is for merchants.

  14. Susan says:

    I agree with Moneymonk. If a customer disputes the transaction, they automatically take the customer’s side without listening to the merchant and charge back your account. We are no longer taking Amex because of this and have found that anyone who wants to pay with Amex always has Visa/MC in their wallet. We have not gotten one complaint about not taking Amex anymore, thus, have lost no business because of it.

    • Dan says:

      We don’t take Amex anymore either, no one has every complained and we even joke about how they are used to it.

      They’ve always got a backup visa/mc card in their wallet and pay and whip it out without even thinking.

  15. Chris says:

    The whole thing about American Express catering to a higher class of sophisticated and wealthy clientele is BS. I got the same offer from them in my mail as I did from Visa, and I wouldn’t say I am sophisticated and wealthy, in fact my credit isn’t really the greatest. I randomly chose to go with American express – then I find out that a lot of companies don’t accept American express.

    I don’t know how they can try to act like the superior sophisticated card when nobody takes them….all other cards have more value because they’re accepted.

  16. Jim says:

    Being a merchant, the deciding factor for us in dropping AmEx was that we had so many fraudulent orders charged to AmEx cards. With Visa, MC, etc., the group that investigates charge backs (i.e., merchant gets stuck) is sort of arm’s length from the CC company. With AmEx, it is not. So, the investigations group in AmEx is financially motivated to stick the merchant with the loss.

    Bye Bye AmEx.

  17. Alana says:

    We currently have a 3-5 gap in payment from american express. 90% of my buisness is credit card sales and 70% is american express.
    This kills my cash flow and makes it difficult to keep business running. Why is the delay sooooooo long? I dont get it.

  18. n7d4cgtt says:

    May I not agree with these two statements by Scott Sanders:

    1.”VISA/MC will issue a card to anyone that breaths”. This is not rue. VISA and MC do NOT issue credit cards themselves.

    2. “VISA/MC assign spending limits to their cards, Amex does not.” There are VISA Signature and World MasterCard cards without pre-set credit limits, and AMEX (VISA and MasterCard as well) even without pre-set spending limit (charge cards) in fact do have a so called “exposure limit” that only AMEX knows and that is not disclosed to cardholder, and it depends on cardholder’s income, spending patterns and some other factors.

  19. Robert S says:

    I also agree with AARON CROW, SALES, KURT and the MAJORITY of the responses from merchants, like me, that are tired of the line of BS that AMEX is trying to feed us. Someone is making a lot of money in interest by holding back merchant’s money and its not VISA/MC. VISA/MC pays me in less than 24 hours and AMEX takes 4 days and I ever never had a questionable transaction the 9 years I have been accepting credit cards. Why AMEX? when a hand written check will clear the next day.Get a new system or get used to a majority of merchants not being overly enthusiastic in pushing your product.

  20. Realkman says:

    Did you guys know that Amex does not refund the discount fees to merchants on credits issued to customers? For example, if a customer purchased something for $100, we pay $3.5 to Amex. If the customer returns the product 1 week later and we refund the $100 back on his card, Amex does not refund the $3.50 back to the merchant. I just verified that this was their policy. HOW CAN THIS BE LEGAL? HOW SHAMELESS CAN THESE PEOPLE BE?

    • Jim says:

      I was under the impression that ever credit card was the exact same way because the fee is for processing the transaction. I’m not defending the practice in general but I don’t think AMEX is alone in this.

  21. Realkman says:

    🙂 Amex told me the same thing.. Himmm…

    I did not know that Visa/MC did the same thing, I will check.. I know for sure that PAYPAL refunds all fees when the transaction is cancelled or refunded.

    There is a 20-30 cent fee for PROCESSING the credit card. The 2-3.5% discount fee is for letting people USE the money. If least in theory. It seems like these bloodsuckers found yet another loophole to screw us all. I am sending this one to the senate banking committee..

  22. JIngram says:

    I want just ONE card in my wallet!! I don’t want to carry 14 cards. As a consumer I should be entitled to do what I want.

  23. Dano says:

    AMEX was just banned at my business. Tired of them. I can’t use it at Sam’s Club, and other businesses. I guess there is a reason for that. I finally decided that I too as Merchant can say NO to AMEX and I have.

  24. Jack says:

    We don’t accept amex, because they aren’t everywhere you want to be.

  25. Stobal says:

    When a merchant refuses my Amex, I usually just complete the one transaction on my Visa or MC. However I usually don’t ever go back to that merchant, I’ll just do business with a competitor that does accept it.

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