One thing a merchant might notice when looking at the average credit card processing fees between the major card networks is that American Express tends to charge more. Visa, MasterCard, and Discover all have credit card processing costs of about 1.5 to 2.5 percent on average. But American Express cards will have rates from 2.5 to 3.5 percent. The high value can be noticeable in an average payment report, as it can entail high values for Amex deals.
The reason for this is because American Express uses a closed network when issuing cards. American Express works both as a card brand and bank.
Direct Card Issuing
Visa and MasterCard allow other banks to issue their cards to people. American Express works differently, as it is a closed network. Only American Express can issue Amex cards.
For MasterCard and Visa transactions, the bank that issues the card takes the financial risks associated with each use. The card brands will still make money from credit card processing costs through interchange fees.
But American Express does not utilize any similar banks for transactions. Amex operates as a bank, meaning the debt from whatever charges come from a transaction will be due directly to Amex. The only fees the company receives come from the merchant that processes the transaction.
American Express will charge higher fees to cover the risks with these cards. The company has more control over how much it will charge on average.
Since Amex doesn’t use outside banks, it will process all its transactions. The internal processing network can cost a good deal of money to operate. Therefore, the credit card processing costs for Amex cards will be higher in value. It is about ensuring the network stays active and operational.
One other factor for why the average credit card processing fees for Amex cards are so high entails the company’s clientele. Amex caters to high-income customers who are more likely to purchase high-value items. These include people who are more likely on average to pay off their credit card dues.
American Express also provides more rewards to its customers. These include cashback rewards and other things people can use with whatever Amex points they collect in their transactions. The company will add to its processing fees to cover the costs for those deals.
What If a Merchant Can’t Afford These Fees?
Not all merchants can afford the credit card processing costs associated with American Express cards. That’s why many merchants sign up for the Amex OptBlue program. The scheme allows merchants to accept Amex cards at reduced wholesale rates. The service works well for smaller businesses that don’t have the funds necessary to process Amex orders.
The OptBlue program is only available to businesses that process fewer than $1 million in Amex transactions each year. Those who process more than that will be subject to regular Amex rates.
All retailers should be aware of how high American Express processing fees can become. The business’s unique structure and clientele make these fees as high as they are.