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Why Do Merchants Shy Away from Accepting American Express? Turns out it’s for All the Wrong Reasons

The longer I am in the credit card processing industry, the more it amazes me how little thought goes into decisions on which credit cards a merchant decides to accept or in this case – not to accept.

We all know most merchants when they apply for a merchant account make the forgone conclusion to accept Visa and MasterCard.  But many have opted out of accepting American Express and or Discover Card credit card processing for payment of their services and or products.

When you ask a merchant “why?” the answer is a universal – “They are just too expensive – their fees are just too high”!

While the statement of their fees being higher than an average Visa or MasterCard processing fee is on the surface correct, if you were to actually examine the extra cost involved, it really isn’t all that much more expensive to accept those cards and actually downright foolish to potentially lose a sale because of it.

Also, Discover Card is now part of the same association that Visa and Master Card are, so the fees for Discover Card are now the same as Visa and MasterCard.  Merchants should now take Discover Card with no reservations whatsoever.

So let’s examine what it really costs in terms of dollars and cents to accept American Express Cards and see if it really warrants non-acceptance of this form of payment for the merchant’s credit card processing.

Because of interchange pricing that dictates the different rates for different types of credit cards (rewards cards, bonus cards etc.) the average rate that a typical merchant will pay for a Visa, MasterCard or a Discover Card payments will be approximately 2.20% – 2.40%.

After talking with literally thousands of merchants as well as looking at many of their monthly statements, the typical merchant has an average credit card sale of around $50.00

If a customer paid with a Visa, MasterCard or Discover Card, the average rate for that transaction would have resulted in a transaction fee of $1.15 ($50 x 2.30%).

Because American Express is not part of the Association that determines the rates for the Big 3, they set their own rate which is a flat 3.50%.  If we take that same $50.00 transaction and multiply that by 3.50%, the transaction fee equals $1.75.

So on a $50 sale, it would cost the merchant about .60 cents more to accept an American Express card than the other 3 ($1.75 – $1.15 = .60).  However, if a customer wants to pay only with an American Express Card, is it wise for the merchant to potentially lose a $50 sale over .60 cents?  If a merchant has such a small profit margin built into their products or services where they cannot absorb 60 cents, then perhaps they need to reevaluate their business model.  Let’s take a look at why I can make this statement. If the profit margin on that $50 sale is $25, they would lose a $23.25 profit because of not wanting to pay the extra 60 cents!  Does this make any sense at all?  I say NO!

Even if the profit margin on a $50 sale is only $10. Does it still make sense to lose a $8.25 profit because of that .60 cents?

When I go through this simple exercise with merchants over the phone, I have yet to have one single merchant not agree that their decision not to accept American Express was based on false assumptions.  They simply looked at the percentage and not really the actual impact on their bottom line.

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