How Is American Express Different From Other Credit Cards
The main difference youll find with American Express when compared to Visa and Mastercard is the fact that American Express acts as both the processing network and the card issuer. Visa and Mastercard are the largest credit card networks in the world, yet they do not issue credit cards on their own. Thats why you find Visa and Mastercard credit cards issued by Chase, Capital One and other big banks.
Another difference is that, unlike other credit card issuers, American Express still offers charge cards. Charge cards are types of cards that require you to pay the balance you charge in full each month, whereas credit cards allow you to carry a balance from month to month.
However, American Express has offered more ways to carry a balance on its cards over the last few years, including its Pay Over Time feature and Amex Pay it Plan it.
Best American Express Credit Cards
6% cash back at U.S. supermarkets on up to $6,000 per year in purchases , 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations, 3% cash back on transit including taxis/rideshare, parking, tolls, trains, buses and more and 1% cash back on other purchases. Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
Earn a $300 statement credit after you spend $3,000 in purchases on your new Card within the first 6 months.
$0 introductory annual fee for the first year, then $95
0% for 12 months on purchases from the date of account opening N/A for balance transfers
3X Membership Rewards® points on eligible travel, transit and at restaurants worldwide and 1X Membership Rewards® points on all other purchases
30,000 Membership Rewards® points after you spend $2,000 on purchases in the first 3 months of card membership
See Pay Over Time APR
Balance transfer fee
4X Membership Rewards® points at Restaurants and at U.S. supermarkets , 3X points on flights booked directly with airlines or on amextravel.com, 1X points on all other purchases
Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases within the first 6 months of card membership
See Pay Over Time APR
Balance transfer fee
Extra Charge For Using A Credit Card
Some merchants seek to impose a service fee for all credit card purchases. When a merchant gives a credit card slip to the credit card company or bank for processing, a percentage of each purchaseusually 1.5% to 5% of the purchase amountis deducted. This “merchant discount fee” helps pay for the bank’s services and for the credit card system. By charging extra for credit card use, the merchant passes the discount fee on to customers.
|MORE: Since 1984, when a Truth in Lending law ban on surcharges expired, some states have enacted laws prohibiting surcharges see States That Prohibit Credit Card Surcharges.|
Visa and MasterCard prohibit surcharges, and American Express discourages them. Amex does prohibit “discrimination” against the Amex card, however, so if a merchant accepts Visa and MasterCard , the merchant may not discriminate against Amex by imposing a surcharge.
|TIP:Any merchant that accepts American Express cards and also accepts Visa and/or MasterCard may not charge consumers a surcharge on Amex purchases.|
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Amex Interchange Rates With A Direct Agreement
As we mentioned above, a direct agreement with American Express is essentially just opening another merchant account, this one through Amex itself. The company offers two different pricing schemes:
- Discount Rate Plan: The overall structure of the discount rate plan is identical to the OptBlue program. You swipe or dip a card and then youre charged a percentage of the transaction. That percentage varies by the transaction size and industry.
- Flat-Fee Plan: The alternative to the discount rate plan is the flat-fee plan. With this plan, youll pay $7.95 plus a flat monthly fee for your processing. The catch is that you must stay within specified terms which means you need to have a very stable volume of processing from one month to the next or risk incurring additional fees.
American Express doesnt publish a lot of details about its payment plans, not even its discount rates or how the flat-fee plan is calculated. I assume its an average amount based on your processing history. However, if you look on the American Express merchant page, you can enter an industry or profession and get an estimate of typical rates within a range. For lodging, as an example, the rate would fall between 3.2% and 3.5%. For a full-service restaurant, rates range between 2.9% and 3.5%. For a sewing/fabric shop, rates range between 2.89% and 3.2%.
Average Credit Card Processing Fees In 2022
A crucial part of achieving maximum profit in a small business is minimizing expenses, and one cost component to keep a particularly sharp eye on is credit card transaction fees. The amount you pay to each company involved in a credit card transaction and how you take payments directly affect how much you spend.
This article reviews the average credit card processing fees for businesses in 2022 and what factors determine your rates.
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New American Express Interchange Updates Effective July 2022
As of July 1, 2022, Amex is updating its pricing policies and discount rates. In a letter from the American Express merchant care team, these changes are based on the merchants prior year of activity and industry. Heres a quick summary of those changes:
- Prepaid cards 1.68% + $0.15 per transaction
- Corporate purchasing cards 3.01% + $0.10 per transaction
Check your statements to see if these new charges apply to your business. You can also have the team here at Merchant Cost Consulting review your statements to check for any specific rate increases.
The Cost Of Accepting Credit Card Payments
When your business processes credit card payments, there will be multiple fees taken out of the total transaction amount. The non-negotiable credit card network fees can vary:
- From 1.15% + $0.05 to 2.50% + $0.10 in interchange fees, although this could be as high as 3.30% + $0.10 if the client uses an American Express card.
- From 0.13% to 0.15% in assessment fees.
The most important factors in what your business pays will be its MCC and the type of credit card the customer uses.
Next, your payment processor will take its cut, unless you’ve chosen a processor that charges one flat rate to cover all the fees in the transaction.
With credit cards growing more and more popular, the typical merchant doesn’t have much of a choice but to pay these fees to the card issuer and payment processor. By knowing how much you’ll pay on each transaction, you can price your products appropriately and ensure you’re making enough money on each sale.
Some businesses also charge a credit card convenience fee to cover the cost of the processing fees above.
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Consider Accepting A Wide Variety Of Payments
New York Citys Rob Eisenstein, owner of online collectibles merchant CardboardandCoins.com, said its important for business owners to accept a wide variety of payments, even if some of these payments, such as credit cards, will cost more. The goal is to convince more customers to make more purchases. By offering more payment options, you can reach this goal.
For Eisenstein, this means accepting not only all credit cards but gift cards, prepaid debit cards and even bitcoin as payment.
Eisenstein relies on e-commerce platform Shopify to handle credit card transactions. He says he spends $35 a month on fees from Shopify.
The fees do add up, Eisenstein said. But what we pay is a drop in the bucket compared to the amount of business we do through them. I know we do a lot more business because we do accept so many diverse forms of payment.
How Amex Interchange Rates Are Determined
There are hundreds, if not thousands, of different interchange rates out there. Thats one of the reasons why this subject can be so confusing. Its tough to determine the interchange portion of a translation without having all of the information.
Without getting too complex here, these are the main factors used by the card networks to determine interchange rates:
For example, business and corporate purchases wont have the same rate as debit cards. Credit card processing for international transactions will likely incur a few additional fees.
Again, there are lots of other factors used to determine interchange rates. Every card network has unique algorithms that they use to set these costs. But these four are the main ones that you should understand, especially for processing Amex cards.
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How Is Amex Different The Closed Loop Network
American Express operates on a closed loop network. This means that American Express issues credit cards directly to its cardholders, and opens merchant accounts directly for business that accept its cards. Other card brands, like Visa and Mastercard, have relationships with banks to issue credit cards. Additionally, Visa and Mastercard do not open or maintain merchant accounts for businesses. Instead, that role falls to credit card processors.
Since American Express does not have to answer to any other financial institution for issuing or acquiring, the company is free to set its discount rates at whatever level the market will bear. What Amex chose to do was set a rate that was the same for all processors, and not permit processors to add a markup. The rate was high it cost significantly more to process American Express credit cards than Mastercard or Visa credit cards.
However, Amex has made changes that affect pricing. Specifically, the company introduced a new pricing model and service that allows processors to handle merchant accounts for businesses and add a markup. That pricing model, called OptBlue, is a fundamental shift that has the potential to lower your Amex acceptance costs. Unfortunately, a lot of business owners are not aware of Amex OptBlue, and processors can use that to their advantage. If youre looking for the lowest costs to take American Express, youll need to know about pricing models and what your processor charges for a markup.
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States That Prohibit These Fees
There are currently two states with active laws prohibiting these fees: Connecticut and Massachusetts.
Thats not to say that other states dont have similar laws. However, several of these have been struck down by federal courts as unconstitutional. Other similar laws have been challenged and seen states stop enforcing them to avoid protracted legal battles.
The Basics Of Credit Card Fees
Ellen Cunningham, marketing and content manager at Tech180 and former manager at CardFellow, a site that provides advice and resources to businesses on credit card processing issues, said most small-business owners struggle to understand just how much their merchant account fees will cost them each month.
Thats because the pricing plans that these companies offer can be confusing, Cunningham said.
They offer pricing models that can be very complicated, she said. This is especially true if youre a small business that doesnt have an accounting staff to really look into these fees.
What if you as a business owner dont have the time to fully research credit card processing fees? It might make sense to take a closer look at what is known as your merchant discount, the final rate that youll pay to accept credit transactions.
Unfortunately, the merchant discount is made up of main parts, your base costs and markups. And both of these fees are made up different parts, too.
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American Express Discount Fees
If you refer to the American Express Merchant Reference Guide US, youll see a clear explanation of Amex discount fees.
I highlighted some of the key terms of this section. The language is basically identical to the definition of an interchange fee its just called a discount fee instead. Amex interchange rates and discount fees can be used interchangeably.
So dont get confused when you see that term.
Are Credit Card Surcharges Legal
The short answer is yes, it is legal for a merchant to impose a surcharge. A U.S. Supreme Court ruling in 2017 protected surcharges as a form of free speech from merchants. Retailers can also require a minimum purchase amount when you use credit cards. Before the Supreme Court ruling, merchants won the right to add surcharges or checkout fees in a 2013 class action lawsuit against card issuers and banks.
Part of the reason why surcharges have been allowed is that businesses themselves are charged when they accept credit cards. These fees on businesses generally range from 1% to 3% of every transaction. Businesses may also pay per-transaction costs. In some industries, such as those that rely on small purchases, its hard to make a profit when customers pay with a credit card.
However, there are limitations to how merchants impose these fees. If merchants decide to use credit card surcharges, they must:
- Clearly disclose the fact that there is a surcharge before the transaction
- Display the credit card surcharge on the receipt.
- Keep surcharges below 4% of the transaction, or the amount of the fees the merchant pays to the credit card companies, whichever is less.
Surcharges are only allowed for credit card purchasesnot debit card transactions. Even if you sign for the debit transaction , it still shouldn’t come with a surcharge as long as you used a debit card.
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The Complete Guide To Amex Interchange Rates And Processing Fees
Unlike Visa and Mastercard, American Express credit card processing isnt very straightforward.
Thats because Visa and Mastercard are both open credit card networks, meaning anyone can issue cards. But American Express is a closed network. This structure gives Amex much more control over credit card merchant fees.
As youve probably learned by now, it costs more to accept American Express credit cards. Anyone who accepts Amex cards knows this. Exactly how much more? Sometimes its difficult to understand.
I consult with merchants on a daily basis. Most small business owners have lots of questions about their American Express processing fees, which is what inspired me to write this guide. Ill clear up any misconceptions and paint a clearer picture of Amex credit card processing fees.
This guide also contains the latest information on Amex interchange rate changes and fee increases.
Understanding Amex Interchange Rates
Generally speaking, most merchants dont have a clear understanding of interchange fees and how they work. When it comes to American Express and those fees, the rates are even more of a mystery.
If you spend your time analyzing interchange charts from the major card networks, youll likely end up more confused than when you started.
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Tips And Guidance For Creating A Safe And Touch
Your customers are looking for a safe and easy buying experience. By implementing an end-to-end touch-free strategy for your business, you can put your customers and your staff more at ease. Here’s how:
- Implement acceptance of touchless payment options, such as contactless, digital wallets, QR codes and/or Mobile Point of Sale to give customers the flexibility to choose how they want to pay.
- Explore other options, such as online and in-app purchases, payment kiosks, in-store and curbside delivery and touch-free loyalty programs to take touchless beyond the register.
What Determines Your Interchange Fees
With each payment network, there are several factors that affect where your interchange fees fall within the ranges above. Here are the most significant:
- Merchant category: Every merchant has a merchant category code corresponding to its business type. Payment networks charge different interchange fees based on the business’s MCC. For example, a supermarket has different fees than a restaurant.
- Type of credit card used: Networks have various types of cards with their own sets of benefits. Cards that offer more benefits, such as travel rewards or purchase protections, usually have higher interchange fees. A World Elite Mastercard will tend to have higher interchange fees than an Elite Mastercard, a Visa Signature Preferred Card usually has higher fees than a Visa Signature Card, and so on.
- Processing method: Interchange fees can change based on whether the card was swiped/inserted , keyed in, or not present . This is in part because the risk of fraud varies based on the processing method. Card-not-present transactions carry a higher risk of fraud and/or chargebacks, and interchange fees are often higher on these transactions.
American Express also uses transaction amounts to determine its interchange fees, with higher-value transactions costing merchants less.
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What Are The Lowest Credit Card Merchant Fees
Of the credit card payment networks, Visa tends to have the lowest fees, although Mastercard and Discover are similar. Once you add in the payment processor fees, your total merchant credit card fees are likely to be close regardless of whether the customer uses a Visa, Mastercard or Discover.
Itâs only American Express users who may make your costs creep up, although even they have lowered their fees in recent years to be more in line with the others. The place where you can really lower your costs are in choosing your payment processor.