Merchant discount rates: AMEX vs Visa/MC
 

Are AMEX rates really that much higher than Visa/MC's for small businesses? I was surprised to read that MasterCard rates can be as high as 3% - 4%, as per the article in the WSJ:

http://online.wsj.com/article/SB1000...Tabs%3Darticle

Depends on your volume and your merchant agreement.
You're right that they can be "as high as" 3-4%.
but Amex's can be "as high as" 7%.

Plus, some merchant agreements stipulate a minimum fee and/or base fee which can be "as high as" 25-75cents, which is why some places have a sign that says "credit cards from $5.00 only", or similar.
If they are being charged $0.50 on a $2.00 newspaper and a candybar, that's 25%, which makes no fiscal sense for the merchant to lose money on such a transaction.

Most larger merchants have better agreements, however.

Not if you accept the figures in the article, which show that American Express' fees are middle of the range. Missing from the article is discussion of Mastercard and VISA charging different fees for different card classes. (i. e. "Rewards" cards carry higher fees than standard cards), while requiring merchants to accept all or none.

It's worth also reading this recent NY Times articles which traces how VISA increased their debit card market share by raising fees:

http://www.nytimes.com/2010/01/05/yo...s/05visa.html?

Does AMEX charge different fees for different cards since each offers different rewards (green vs gold vs plat charge OR vs credit cards)?

I was a little surprised by the comment regarding Costco in the NY Times article. I thought Costco only took American Express cards, but there are no AMEX debit cards, correct?

When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.

The difference is so large that Costco will not allow you to sign for your debit purchase in its checkout lines.

For my business, at the end of the day Amex works out cheaper. Visa/MC nickel and dime you for everything. Different cards carry different rates but you are required to accept all. You also get dinged for all kinds of other charges that are really never disclosed up front

+1

I don't know about others, but my clients who use AX are usually better clients than those who use MC or VS. They usually spend more on higher end stuff.

I'm not aware of any debit AMEX cards. I would think Walmart or another such discount retailer would be first in line to force you to use a PIN if they could on debit card transactions.

I just so friggin happy people are paying me that I'll gladly take anything!

You may use Amex credit/charge cards. You may also pay with Visa/MC debit cards, but only if you use your PIN, not signature.

Does any member of FT have any insight on why Costco only accepts AMEX?

I imagine it is that they two companies have negotiated an agreement that combines an exclusive relationship with low % fee or even potentially a flat fee plus a %. I would be interested to hear it if someone has any better insight.

I do know/realize that contracts are kept very secret.

Interesting. I knew you could use personal checks, but I had no idea that you could use non-AMEX plastic at Costco.

Costco used to be Discover only, but they signed a deal a few years back to exclusively accept AMEX in stores. In their online store, they can accept other cards, but in-store credit card purchases are restricted to AMEX cards. Debit cards can be used ( I believe as mentioned above for non-signature i.e. pin transactions).

I don't recall what the exact agreement was, but i'm guessing it resulted in a discounted merchant fee for each transaction etc. along with the costco branded amex card etc.

Costco probably accepts debit cards because of the fact that when you choose PIN instead of signature, it is no longer done over the Visa or Mastercard network but instead over other networks such as STAR or PULSE. If you look at the back of your debit card (not credit card), you will probably see one of these logos. This is a different network than Visa/MC and typically incur lower fees for the merchant.

I didn't realize that other cards could be used on the website. Thanks for that info.