Originally Posted by
kyanar
One thing missed from the analysis you're all doing here is that AMEX is a three party system, not a traditional four party system. In a typical transaction, interchange is the amount that acquiring bank pays issuing bank out of the transaction, but the merchant is charged more than that by acquiring bank - if the interchange is 1.3%, the merchant is likely charged more along the lines of 1.8%-2.3%. In AMEX case, they are both the issuer and acquirer, so they collect the entire merchant fee. Based on this, they've even managed to reduce their merchant fee in Australia for small businesses to 1.5% (on the provision that you get shoved straight back up to 2.8% if you surcharge more than Visa and MasterCard).
Right, but what you are missing is that this is their main revenue source. While interchange fees are also a revenue soure to other banks, they mostly make money from interest they charge people who carry balances. Amex was initially just offering charge cards, so they had no revenue from interest. Nowadays they have plenty of traditional credit cards and now they are also desperately trying to convert their charge cards to be more like credit cards. They wouldn't be doing that if it wasn't absolutely necessary, because people carrying balances are a much higher risk. From this it becomes pretty apparent that Amex is being squeezed - their traditional revenue source is drying up, so they have to find alternatives.