American Express discount rates are higher due in large part to the company's closed loop system.
Update: American Express has introduced OptBlue, which is a new pricing structure that will replace the company's current One Point pricing for most businesses. OptBlue allows processors to add a markup to Amex's base rates, which creates different rates for American Express among processors. Please follow the previous link to learn more about OptBlue.
American Express operates on a closed loop network whereby it issues credit cards directly to cardholders and merchant accounts directly to businesses.
Since American Express issues merchant accounts directly, the company also governs its own discount rates. Therefore, the rate that a business pays to accept an American Express card will remain the same regardless of the credit card processor it uses to process Visa, MasterCard and Discover transactions.
A credit card processor that claims to offer lower American Express credit card processing fees than its competition is simply being misleading. American Express sets its own discount rates which are exactly the same for all credit card processors.
- Closed Loop Network
- American Express Discount Rates
- American Express Refunds: Hidden Fee
- American Express Settlement
- American Express One Point
- Should You Accept American Express?
- Opening an American Express Merchant Account
- Transferring an American Express Merchant Account
Closed Loop Network
American Express operates on a closed loop network. This means that American Express issues credit cards directly to its cardholders, and opens merchant accounts directly for business that accept its cards.
The closed loop network of American Express gives the company a competitive advantage over open loop networks like Visa and MasterCard.
Unlike American Express, Visa and MasterCard do not issue or acquire credit cards. Instead, these companies maintain an open network that allows various issuing and acquiring banks to communicate in order to facilitate the credit card processing system.
It's easiest to think of American Express's closed loop network as a dictatorship, and the open loop network of Visa and MasterCard as a democracy.
Since American Express does not have to answer to any other financial institution for issuing or acquiring, the company is free to set its discount rates at whatever level the market will bear. This is why businesses pay significantly more to process American Express credit cards than they do to process MasterCard or Visa credit card transactions.
American Express Discount Rates
American Express discount rates are based largely on a business's merchant category code (MCC). Unlike Visa and MasterCard interchange fees, American Express discount rates have relatively few qualification factors.
American Express discount rates for retail stores and restaurants will downgrade (meaning the rate increases) if a transaction is keyed-in rather than swiping a card, but most rates are the same regardless of transaction method.
American Express does not charge a credit card transaction fee and a discount rate for every industry category. Many rates consist of a percentage-base charge (discount rate) without a transaction fee (flat dollar amount, i.e. $0.10).
However, virtually all credit card processing services will charge a fee to process American Express transactions through their network. So, even if American Express does not charge a transaction fee directly, a business will inevitably have to pay a transaction fee to its credit card processor for processing American Express transactions.
The following table outlines basic American Express discount rates. Keep in mind that discount rates are subject to change, and you should check with American Express, or your credit card processor for the latest rate information.
|Business Type||American Express Discount Rate & Transaction Fee|
|Fast Food Restaurant||3.50%|
|Mail Order & Internet||3.50%|
|Restaurant *||3.50% plus a $0.05 Transaction Fee|
|Independent Gas Stations||3.25%|
|Retail *||2.89% plus a $0.10 Transaction Fee*|
|Services, Wholesale & All Other||2.89% plus $0.15 Transaction Fee*|
|Office-based Doctor, Dentist, Orthodontist||2.55%|
|Healthcare not office-based||2.89% plus $0.15 Transaction Fee|
|* A surcharge of 0.30% will apply to transactions that are not swiped. For example, keyed-in, e-commerce and other card-not-present transactions will be charged a discount fee of 3.80% instead of 3.50%|
American Express Settlement
In addition to charging hefty discount rates, American Express transactions take longer to settle when compared to Visa and MasterCard. This means that deposits for American Express credit card sales take longer to show up in your business checking account than deposits for Visa and MasterCard sales.
Barring a processor-imposed risk hold, Visa and MasterCard transactions are generally settled within 24-48 hours, meaning that deposits will show in your business checking account 24-48 hours after approved authorizations are sent to the processor for settlement.
With the exception of American Express One Point, which we will cover in a moment; American Express transactions typically take almost twice as long to settle as Visa and MasterCard transactions. Deposits will generally take three to seven business days to show up in your business checking account.
Check out our article about the credit card transaction process for a more detailed explanation of credit card authorization and settlement.
American Express One Point
American Express One Point (also referred to as American Express Full Service by First Data) is a program offered by American Express that makes it possible for participating processor to streamline the authorization, settlement and reporting of American Express processing volume.
The main advantages to American Express One Point are faster settlement of American Express transactions and reporting that is easier to reconcile.
American Express One Point makes it possible for a processor to settle American Express processing volume along with Visa, MasterCard and Discover volume. Instead of receiving a separate, delayed deposit for American Express transactions, all credit card sales are sent in a single deposit in the time it takes to settle Visa and MasterCard volume. This means that American Express volume settles roughly one to four days faster through One Point than it does with a traditional American Express merchant account.
One Point also streamlines the reporting of American Express volume. Instead of receiving a separate statement for American Express transactions, One Point makes it possible for a processor to report the card volume and charges for Visa, MasterCard, Discover and American Express on a single monthly statement.
Accept American Express?
High discount rates and delayed settlement lead many businesses to give careful consideration to the costs and benefits associated with accepting American Express credit cards. In fact, we help many businesses here at CardFellow that opt not to accept American Express citing the increased costs.
Customer demand and cash flow requirements are typically the primary determining factors when considering whether or not to accept American Express.
Businesses that cater to a professional clientele or that operate within the travel and tourism industry will likely be forced to accept American Express due to customer demand.
The following table provides an estimate of the percentage of total charge volume that American Express will account for within a given industry. Businesses that operate within industries with a high percentage of American Express volume should strongly consider accepting the card.
|Industry||American Express % of Total Charge Volume|
|Restaurant / Food Service||35%|
|Travel & Tourism||35%|
|Supermarket & Grocery||3%|
|E-Commerce & Mail-Order||15%|
|Business-to-Business Service & Wholesale||15%|
Businesses that require steady cash flow should give careful consideration to the extended settlement time associated with American Express processing volume. If cash flow is a concern and customer demand for American Express is high, only processors that are able to offer American Express One Point should be considered.
American Express Discount Rates
A little-known "hidden" credit card processing fee is associated with issuing a customer refund. The issuing banks of Visa, MasterCard and Discover will reimburse businesses a portion of fees when a customer is given a refund. American Express does not refund fees unless a business agrees to pay a higher discount rate on gross sales volume.
Note: Even though fees are refunded by Visa, MasterCard and Discover, processors often intercept the refund before it reaches the business. Read how to stop your processor from stealing your refunds here: Credit Card Refunds: Is Your Processor Stealing Your Credit?
On page 21, section 4.7 of its Merchant Reference Guide, American Express states (bold and underline styling added by CardFellow):
"A Credit may occur when a Merchant processes a refund for purchases or payments made on the Card. If the Merchant issues a Credit, we will not refund the Discount or any other fees or assessments previously applied on the corresponding Charge, unless the Merchant elects to increase its Discount Rate by 40 basis points (0.40%), in which case, if the Merchant issues a Credit, we will refund the Discount (but not any other fees or assessments) previously applied on the portion of the corresponding Charge that has been credited."
Essentially, a business has to pay more up front to receive a refund on fees for returns. American Express is a winner either way.
Opening an American Express Merchant Account
It is not necessary to contact American Express directly to open a merchant account. If you choose to accept American Express, the processor that you choose to handle your Visa, MasterCard and Discover volume will be able to open an American Express account on your behalf.
The processor will integrate your American Express merchant account into your credit card machine, gateway or other processing solution so that all card brands can be processed through the same application.
Transferring an American Express Merchant Account
A business cannot have more than one American Express merchant account. If a processor opened an account for your business in the past, a new processor will not be able to open a new American Express merchant account on your behalf.
Instead, you will have to provide the new processor with your existing American Express merchant account number so that they may reference the account when configuring your credit card machine, gateway, etc.
If you have lost your American Express merchant identification number, you will need to contact American Express directly. Processors cannot obtain a lost merchant ID number on your behalf.