Why More Retailers Are Accepting American Express

AmEx says it's reached 'virtual parity' in the U.S. with Visa and Mastercard through partnerships that have gotten small and locally owned businesses on board.

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If you’ve become accustomed to leaving your American Express credit cards in your wallet when shopping at small or locally owned businesses, you may now find that you can put that card back into service.

Thanks to an initiative to increase its acceptance rates among U.S. merchants, American Express says it has achieved “virtual parity” with Visa and Mastercard, according to its internal data. American Express announced the news in January 2020 in its Q4 2019 earnings release.

What does this mean for you? According to an American Express representative, 99% of U.S. merchants who accept credit cards also now accept AmEx.

Why American Express was lagging

American Express is one of the four major U.S. payment networks, along with Visa, Mastercard and Discover. And for many years, AmEx lagged behind all of them in terms of merchant acceptance. As a shopper, you yourself may have heard the phrase, "I'm sorry, we don't take American Express."

Compared with the other payment networks, AmEx tended to charge merchants higher interchange fees, aka 'swipe fees.'

The main reason: Compared with the other payment networks, AmEx tended to charge merchants higher interchange fees, aka "swipe fees." When you swipe (or dip or tap) a credit card, the store pays a fee to ensure that you get charged and the store gets paid for the sale. Part of that fee, known as "interchange," goes to the credit card issuer and typically ranges from 1% to 3% of the transaction. This varies depending on multiple factors, including card type, merchant type, and transaction volume and value.

Unlike with debit card interchange fees, which are capped, federal law does not regulate or limit credit card swipe fees. They're typically set by the payment networks, and American Express in the past has been more expensive for merchants to accept, with swipe fees as much as one percentage point higher than the competition as recently as 2017.

That may not sound like much, but it can make a big difference for small businesses operating on extremely thin margins. Not coincidentally, small businesses often were precisely the kinds of places that didn't accept AmEx — until recently.

Nerd tip: Why have AmEx swipe fees historically been higher? It has to do with its business model. Typically, credit card companies make much of their money via interest charges. But many of American Express’ most popular products are charge cards rather than true credit cards, meaning cardholders pay their bills in full every month and do not incur interest. AmEx's card business has relied largely on fees, including annual fees and swipe fees from merchants.

And how American Express caught up

AmEx says a large factor in its increased acceptance over the past few years has been its OptBlue program, which allows small businesses (defined as having an estimated American Express charge volume of less than $1 million per year) to accept American Express cards through one of the third-party payment processors that partner with the issuer.

In a shift from the traditional system, those payment processors set the swipe fee rates they charge businesses, so merchants can shop around for a more competitive rate.

According to an American Express representative, 99% of U.S. merchants who accept credit cards also now accept AmEx.

It certainly seems to be making a difference. The Nilson Report, an influential industry newsletter, confirms that third-party partnerships have helped boost AmEx acceptance. And per 2019 Nilson data, the 2018 average merchant fee for American Express credit cards was reduced to 2.3%, compared with 2.26% for Visa and Mastercard and 2.15% for Discover

(At the time of this writing, Visa announced it would be overhauling its merchant fees beginning in April 2020.)

Those lower fees don't seem to be hurting AmEx's bottom line, either. The issuer reported all-time-high revenue in 2018 (the most recent full report available), driven by several factors including growth in the number of cardholders, growth in worldwide spending on its cards, growth in revolving balances, and additional overall acceptance in the U.S. and internationally.

Merchants may have another possible incentive to accept American Express: Their cardholders apparently spend more. On average, consumers carrying an American Express card spend three times more than consumers who don’t, and their average transactions on those cards are 1.7 times higher, according to data provided by American Express.

Where American Express still lags

While the AmEx acceptance gap may have virtually closed in the U.S., it's still common to run into acceptance issues from merchants in other countries.

International acceptance data wasn't immediately available, but the gap with Visa and Mastercard is big enough that AmEx has made closing it a priority. The issuer is working to increase acceptance worldwide by 20% in three years by partnering with local banks abroad that will acquire merchants on AmEx's behalf.

It's also worth noting that AmEx has taken steps over the past year to improve the scope of its rewards-earning credit cards, several of which used to earn dining rewards at U.S. restaurants only. Examples of cards whose dining rewards now extend to restaurants "worldwide":

This, of course, assumes that the eatery in question accepts American Express in the first place. If your go-to card is an AmEx, you should still bring a backup Visa or Mastercard when traveling internationally, just in case.

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