Amex made 19.2 billion – with a B – in merchant fees last year…
American Express has just won a landmark supreme court case regarding credit card competition, which challenged the credit card giant on a variety of levels. The question: can merchants encourage customers to pay via other cards, rather than Amex? The answer: no. While on the surface this isn’t revolutionary, the findings and opinions from the case are fascinating, at least by banking standards.
Merchants Charge More Because Of Amex
That’s right. Justice Stephen Breyer of the United States Supreme Court opined “Merchants generally spread the costs of credit-card acceptance across all their customers.” In other words, the places you spend money will often raise prices to account for the costs associated with taking Amex and other premium rewards credit cards. Historically, merchant fees charged by Amex have been higher than other card issuers to help fund their premium rewards program, which meant in one way or another, non Amex cardholders were subsidizing Amex cardholders – at least in Stephen Breyer and BuzzFeed’s opinion. And cash customers? Yeah they definitely suffer, and not just because they’re missing out on rewards from each purchase.
Amex Brought Better Rewards To Consumers
People love their points. In fact, it’s probably why you’re here. According to the case, American Express brought the rewards game to new levels, dragging Visa and Mastercard into the fray. Justice Clarence Thomas is of the opinion “Amex’s business model spurred Visa and Mastercard to offer new premium card categories with higher rewards, and Amex provisions do not prevent Visa, MasterCard, or Discover from competing against Amex by offering lower merchant fees or promoting their broader merchant acceptance.” In other words, nothing is stopping Visa, Mastercard or Discover from coming out with lucrative rewards schemes, and Amex has forced everyone to step up their game.
Amex Or Bust For Merchants
Historically American Express has charged much higher merchant fees than other card issuers, but for many businesses, not taking the card would cost far more. Amongst others, restaurants in particular have expressed the notion that not taking Amex would put them out of business, as savvy consumers aim to reward their lifestyle with the most points. No Amex, no dinner. American Express is reportedly lowering merchant fees this year, and argues now that their fees are in line with premium Visa and Mastercard rewards offerings, such as the Chase Sapphire Reserve or Citi Prestige. Hey, you can’t turn down 3X points on dining…
I wish I’d have realized what I was missing out on much earlier. Have just really started becoming more savvy within the last 6-8 months. Since I got started four years ago, I’ve probably missed out on tens of thousands of dollars in reward points and benefits. Thanks for covering stories like this and others! I would never have gotten SPG if not for your coverage, and between bonuses and spend, my wife and I will have earned 200K SPG over the last 6 months.
What is SPG ????
AmEx got me started on the points & miles game when someone first invented it. Chase has been eating their lunch for several years. I cannot imagine why anyone would not use the Chase Sapphire family of cards for everything. I’d like to be loyal to AmEx, but they make it impossible as they continue to erase benefits.
@ Ghislaine van der Borch, SPG=Starwood Preferred Guest.
From being an American Express Platinum card holder and from my experience in retail business I KNOW that many businesses just refuse to sign up with AMEX because of their fees. One owner of a business told me, when asked why he refused to accept AMEX, “they charged such high fees that, to me, they wanted to become a partner. NOT just charge me high fees to allow customers to come in and use their card”. Many businesses just refused to accept AMEX because of what they considered high user fees to the business. As a retailer of high end merchandise, I know we accepted the AMEX cards up to a point but we would not allow people to put 5+ figures on their AMEX cards because of the margin we would lose if we allowed such a practice. This is allegedly AMEX guidelines but it was the only way we would allow aby AMEX use at our business. Again, I never got any blow back from AMEX card holders when refusing to allow large payments on this card because they knew that we knew that all they wanted were the points and would pay off the amount as soon as the points were put on their statement. They also knew AMEX fees were way higher than Visa or Mastercard. Nothing prevented this practice and it was fine if the merchant allowed them to charge a large amount to their AMEX cards. This is the “free market” at work. If a business did not want to pay the AMEX fees they did not sign an agreement to allow the use of the cards. The consumer could take their business elsewhere if they disagreed or use another form of payment but they were not forced to use another form of payment unless they wanted the lower price that many businesses put on their products. Many times I asked about using my AMEX Platinum card to pay for a purchase and was politely told that the business did not accept AMEX as a form of payment so I just used another form of payment. I got it.
SPG = Starwood Preferred Guest, but it is being rolled into the Marriott program, so they will use one card/number.
I like that the judges understand the value of rewards and how American Express has caused Visa, Mastercard, and Discover to up their game and offer premium credit cards to compete. Even more, I like that the judges were not willing to punish Amex for being an innovator and disrupter.