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American Express & Small Business

Before investigating, I found it strange that some small businesses don’t—won’t—accept American Express (AmEx) and I wanted to understand why that is.   Being a card member with American Express for almost 9 years, Its now an unnoticed habit to ask if AmEx is accepted. Usually it’s during a visit to a small businesses I’m new to, I’ll politely ask. Usually, my card’s welcomed without question, but not always. Some small businesses won’t accept my method for payment, causing me to either leave empty handed or scrambling for cash. These situations are not only inconvenient but also annoying. So out of pure irritation and a little curiosity, I began my quest for truth.   I started with the businesses; over the course of this summer, I asked a number of merchants, who didn’t accept AmEx, why they’re resistant towards welcoming the service. I found their responses to be...dubious, at best. The most common feedback I heard was “their processing fees cost too much.” So I decided to research the cost of these services and here is what I found.   When comparing the processing fees between the legacy brands of Visa, MasterCard, and Novus Discover to American Express, I contacted five cars processing companies by phone to obtain the differences in cost. Now there’s a few factors that play into a merchants processing costs, such as the business location, size, type, along with the contract term, method of payment capture, signing incentives, and so on. However, there’s a baseline which most small business owners pay into. For this, I will focus on the most common method for payment, ‘card present in-person’ transactions. I also exclusively examined the processing percentage fees. Each processing percentage fee shown here is applied per transaction: Visa 1.29% + 5¢ to 2.54% + 10¢; MasterCard 1.29% + 5¢ to 2.64% + 10¢; Discover 1.53% + 5¢ to 2.539% + 10¢; American Express 1.58% + 10¢ to 3.3% + 10¢. Most small businesses pay the highest percentage rate, to each processing company’s price spread. Large businesses like hyper-markets, department stores, and supermarkets, pay the lowest percentage rate.  So what’s my take on small businesses choosing to not accept AmEx? I find their reasoning behind it stupid and foolish.  Turning away a customer over 0.64% is beyond senseless. Sure, it does cost more to process American Express but with the average markup for a merchants product / service being over 80%, there must be a bias against the processor because of prior issues.  


Sources:  Flagship merchant, Pauline data, American Express, TSYS Merchant solutions,  Helcium


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