Amex to cut interchange fees to increase acceptance

Old Mar 17, 2018, 2:32 pm
  #31  
 
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Originally Posted by Fiordland
If it is a travel card for someone who does not travel outside the US, then Discover may make sense.
They aren't. Discover is cash back, even the "miles" card is cash back.
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Old Mar 17, 2018, 2:51 pm
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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).
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Old Mar 17, 2018, 3:07 pm
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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.
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Old Mar 17, 2018, 3:21 pm
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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.
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Old Mar 17, 2018, 3:26 pm
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For me I really dont care AMEX, VISA, or MC only care about the perks. AMEX is he laggard in acceptance and it aint no wonder.

The charge cards better watch out as the cashless and creditless Alipay and WeChat are making huge push on the far east
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Old Mar 17, 2018, 3:31 pm
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My apartment you can pay w Visa or MC - but no to AX

Eye doctor - same thing
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Old Mar 17, 2018, 3:31 pm
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Originally Posted by blaz
Right, but you can use Amex at restaurants, just not all of them. So really, Amex is loosing out on only a small percentage of potential revenue. Yet if they lower the interchange fees, they potentially loose a huge amount of revenue.
This is a short term loss for a long term gain. Something they should've done a long time ago. Amex needs more small business uptake to get rid of the perception that their cards are not accepted everywhere. Even I don't feel comfortable carrying just an Amex card, which is why I always carry Visa for backup. There a lot of people who just rather not use Amex at all and stick with Visa and MasterCard for convenience.
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Old Mar 17, 2018, 3:40 pm
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I just got back from 6 weeks of travel in a light aircraft. I used my Amex at every opportunity (hotels, aircraft fuel, rental cars, meals, etc.). The only places that did not take Amex were the fuel truck at Cozumel airport and an aircraft maintenance shop in Texas. This is my experience in general and I use (Delta) Amex for most everything.
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Old Mar 17, 2018, 3:53 pm
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Originally Posted by mikesyr18
It's embarrassing that AMEX has to keep devaluing their brand. The typical AMEX user doesn't care if one merchant doesn't take their card... They'll just go to a competitor that does.
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I disagree. Going to a competitor is a hassle if you're ready to purchase. My guess would be that the typical AMEX user (who isn't on FT and obsessed with miles/points) simply pulls out their Visa/MC to complete the transaction and the carries on with their day.

Originally Posted by mia
I don't mean anecdotes, I mean the type of data that American Express would use to make decisions.
This. Amex has the data. We only have anecdotes.

I'm sure some people go to the trouble of seeking out other merchants if their preferred one doesn't take Amex. Anecdotally, I'm not one of those people. If I'm standing in a store or whatever and they don't take Amex, I pull out my Visa. If a merchant charges a processing fee for CCs, I pull out cash or my checkbook. While Amex is always my first choice payment method, checking for Amex acceptance is not something I do when searching for a store/restaurant/whatever.
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Old Mar 17, 2018, 4:12 pm
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Originally Posted by gooselee
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I disagree. Going to a competitor is a hassle if you're ready to purchase. My guess would be that the typical AMEX user (who isn't on FT and obsessed with miles/points) simply pulls out their Visa/MC to complete the transaction and the carries on with their day..
I did mean in the future, after the purchase has already been made. One could just make a mental note to not visit that certain Subway or that particular Kroger again.
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Old Mar 17, 2018, 4:16 pm
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Originally Posted by gooselee
Going to a competitor is a hassle if you're ready to purchase. My guess would be that the typical AMEX user (who isn't on FT and obsessed with miles/points) simply pulls out their Visa/MC to complete the transaction and the carries on with their day.
That's what I do. The best grocery store around here doesn't take Amex, but I still shop there. The smaller store down the road does take Amex but they don't carry everything I need. Same for restaurants. I'd prefer to use Amex where possible (especially if I'm trying to meet a $5000 minimum spend on a new card), but my favorite restaurant doesn't take Amex and I'm not going to stop going there because of it. All things being equal, I'll choose a merchant who accepts Amex, but those of us who don't live in major cities often have limited choices and I'm not going to compromise the product I'm buying just to earn a few more credit card points.
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Old Mar 17, 2018, 4:20 pm
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Originally Posted by mikesyr18
I did mean in the future, after the purchase has already been made. One could just make a mental note to not visit that certain Subway or that particular Kroger again.
That's fair, but I'd argue that allowed credit card flavors is pretty low or nonexistent on the priority list for most people when deciding where to buy something, especially if you consider that the places that don't take Amex tend to be smaller, local businesses vs. big chains. Product quality, location, hours, convenience, service, etc....

My dry cleaner and favorite restaurant both don't take Amex. I know this and will continue going to them anyway, because I care more about the quality of their product than collecting a few hundred Amex points. If those merchants decide they will start taking Amex as a result of the lower interchange fee, I will continue going there but I will start using my Amex instead of Visa. In that instance, Amex has won those transactions away from Visa.

Perhaps I'm the only one like this, but speaking for myself, I don't factor CC acceptance into my choices of merchants in any way whatsoever. But if more of the places I already spend money begin taking Amex, I will naturally use my Amex more and my Visa less.
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Old Mar 17, 2018, 4:26 pm
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Originally Posted by Fiordland
Not certain where the 90% comes from. In Canada there is no bank that issues Discover cards and the vast majority of merchants don't accept such things. I think Sears had some Discover logos on there tills before they went bankrupt.
Actually almost all small businesses accept Discover and Diners in Canada as it's bundled with Visa and MasterCard (as well with Amex most of the times these days). Its some large businesses that can be problematic for Discover in Canada but a lot of large businesses also use termonals straight from the acquirer so it's not a huge issue.

Discover Acceptance is rarely advertised though .
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Old Mar 17, 2018, 4:30 pm
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Originally Posted by gooselee
.... If those merchants decide they will start taking Amex as a result of the lower interchange fee, I will continue going there but I will start using my Amex instead of Visa. In that instance, Amex has won those transactions away from Visa.
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I wonder how long it will take non-AMEX accepting merchants to start accepting the card. I couldn't imagine the current merchants really care, because everyone has a Visa or MasterCard, and they already take those cards to begin with.

Who knows, we might see the 6% Blue Cash turn into a 4% Blue Cash as a result of these fee changes, or perhaps AMEX may raise the annual fee instead because AMEX will pull in less revenue from purchases at merchants that already accept the card.

If AMEX is looking at major changes, they may want to look into their points and cash programs... A one statement lag and a $25 at a time redemption option isn't appealing at all. If it weren't for these limitation, myself, and many others may have a Blue Cash in their wallet.
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Old Mar 17, 2018, 4:48 pm
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Originally Posted by mikesyr18
I wonder how long it will take non-AMEX accepting merchants to start accepting the card. I couldn't imagine the current merchants really care, because everyone has a Visa or MasterCard, and they already take those cards to begin with.

Who knows, we might see the 6% Blue Cash turn into a 4% Blue Cash as a result of these fee changes, or perhaps AMEX may raise the annual fee instead because AMEX will pull in less revenue from purchases at merchants that already accept the card.

If AMEX is looking at major changes, they may want to look into their points and cash programs... A one statement lag and a $25 at a time redemption option isn't appealing at all. If it weren't for these limitation, myself, and many others may have a Blue Cash in their wallet.
Unless they're mandating the processors charge a lower rate as well I can see the processors keeping the same rate and taking the extra profit instead of passing savings on to their customers.

The BCP is already just above 4% when you consider the annual fee. And I agree with you - the frustrating process behind the CB from the BC cards is frustrating. I still use my BCP because I have it but I would seriously consider not even putting grocery and gas spend on it when my SPG gets me potentially more CPP.

Ultimately I'll likely end up only carrying Visas going forward once I decide I'm done playing the points game. Accepted everywhere, no hassles, and as much as people want to think American Express is easier to work with, they actually aren't.
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