Originally Posted by
blaz
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.
No, I'm not missing that. The FT article actually mentions that last year, 20% of their revenue was interest. However, the reason why their traditional revenue source (merchant commission) is under pressure is because of falling acceptance, caused by higher merchant commission. Reducing it actually does result in increased uptake. Real world example - I run a consulting business and when I went to the bank looking for Visa/MC acceptance, received a quoted rate of 1.4%. That 1.4% covers cards with interchange rates running from 0.4% through to 1.8%. If I accept a card with a 0.4% interchange, that issuer gets 0.4% of the transaction and my acquirer takes 1.0%. if I accept a card with a 1.8% interchange, that issuer gets 1.8% and my acquirer loses 0.4% - presumably they figure it all comes out in the wash anyway. But Amex quoted me 1.5% across the board for their cards. Whenever I take an Amex, they get 1.5%. Fullstop. They don't have to give anything to anyone - so even at 1.5% they still come out better off than the Visa/MC issuers the vast majority of the time.