August 20, 2014 | In: Financial

Why Is It That Most Merchants Do Not Accept American Express?

Yesterday, while waiting in line to pay here at Target here in downtown Montreal, I heard the lady at the cash telling someone that they do not accept American Express cards. It wasn’t the first time I heard that – and I’m sure that’s the same for many others here in North America. It seems that American Express is not welcome at many locations, offline and online. So why is that?

Well, there a few reasons for this:

  1. American Express’ discount rates are very high: Their fees are significantly higher than those of Visa and MasterCard. In fact, they take about 3% to 4% of the whole transaction, compare that to the other major credit card companies, which take anything between 1.9% an 2.9% (note that the discount rate of any credit card company is inversely proportional to the volume of the sales). Retailers, especially large ones which have very small profit margins, cannot afford to pay that much money to process their transactions. In fact, here in Montreal, the only places that would accept American Express are fancy restaurants and art galleries, because they both have a huge profit margin, and they don’t care about paying that extra 1% to the payment processor to get more sales. By the way, and in case you’re wondering, the reason why Amex’s discount rate is very high compared to its peers in the industry is because of all the rewards and perks that Amex customers enjoy.
  2. They take ages to payout merchants: Well, not really ages, but a transaction processed through Amex can take up to a week to be credited to the merchant’s account – compare that to the 1 business day it takes for a transaction to be credited if processed through Visa or MasterCard.

  3. They’re not the greatest when it comes to chargebacks: If a customer reverses a charge (chargebacks) through Amex, then they will instantly reverse the transaction by debiting the money from the merchant’s account (though they won’t immediately credit back the customer). Reversing a chargeback is a nightmare (even if the customer consents that he chargebacked when he shouldn’t) and can take up to 6 months.

The above are the main reasons why American Express is not accepted in many places. What’s odd is that American Express seem that they couldn’t care less about it, probably because they think of themselves as an exclusive club. In my opinion, they’re not even remotely exclusive; I remember that it took them 4 years to understand that I was not even slightly interested in their services (they kept sending me those “you’re pre-approved” mails).

Now, for all of us doubting American Express’ strategy, let’s take a look at their stock: American Express (NYSE:AXP) dropped 2.87% so far this year. For that same period, Visa (NYSE:V) dropped 3.45%, and MasterCard (NYSE:MA) dropped a disastrous 8.55%. Who’s laughing now?

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