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Why Don’t More Retailers Accept American Express?

American Express charges merchants higher fees than other card networks, and some retailers have decided it just isn't worth the extra cost.
Credit Card Basics, Credit Cards
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If you use an American Express card regularly, you’ve probably had a store clerk or two shrug and say, “Sorry, but we don’t take American Express.” Although it has been gaining ground, AmEx still lags behind Visa, Mastercard and Discover in acceptance by merchants. The main reason: It charges merchants higher fees than those other networks.

» MORE: How many merchants accept each kind of card

Higher swipe fees on AmEx

When you make a purchase with a credit card, the merchant pays a fee equal to a percentage of the sale amount. These “swipe fees” go to the financial institutions involved in the transaction, and they’re set by the payment network — American Express, Visa, Mastercard or Discover. Fees are set according to multiple factors, including the merchant’s primary line of business, how the merchant processes transactions and the merchant’s transaction volume. In general, swipe fees on Visa, Mastercard and Discover range from 1.5% to 2.5% of the transaction. For American Express, it’s more like 2.5% to 3.5%.

The difference in fees between AmEx and its rivals may not seem like much, but it can be more than some retailers can afford.

That might not seem like much, but many small businesses operate on extremely thin margins, where a single percentage point can make a big difference. Not coincidentally, it’s smaller retailers that are less likely to accept American Express.

Federal law does not regulate or limit credit card swipe fees. By contrast, a 2010 federal law cut swipe fees on debit cards nearly in half, to about 21 to 24 cents per transaction. That action was supported by retailers, who argued that the fees unfairly inflated the prices that consumers paid. Banks ultimately made up for that lost revenue by increasing fees in other areas, and research showed that, on the whole, retailers did not reduce prices to account for the lower fees.

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Why AmEx charges more

American Express charges higher swipe fees because it operates on a different business model from most credit card issuers.

Most credit card issuers make the bulk of their profits from interest, but American Express relies more on fees.

Most credit card companies make the bulk of their profits from interest charges. But many of American Express’s most popular products are charge cards rather than credit cards, meaning cardholders pay their bills in full every month and do not incur interest. AmEx’s card business relies mostly on fees — annual and other fees charged to customers and swipe fees from merchants. So the company is unlikely to lower the fees it charges retailers, unless it undergoes a major change in the way it operates.

It’s also important to note that American Express has long targeted a wealthier clientele. Merchants have to do the math to decide whether appealing to higher-spending consumers is worth the higher fees they have to pay. Those that decide it is will pay the fees (and adjust their prices to absorb them). Those that don’t think so will decline to take AmEx.

Carry a backup card

Even though American Express’s acceptance is lower than its rivals, most retailers that take credit cards do accept American Express. And NerdWallet often recommends several AmEx cards, such as the Blue Cash Preferred® Card from American Express for families who spend a lot at the grocery store and gas station, or The Platinum Card® from American Express for frequent travelers who appreciate luxury perks. But those recommendations come with a suggestion: If an American Express is your everyday card, carry a Visa or MasterCard — credit or debit — as a backup, just in case.

» MORE: See NerdWallet’s best Visa and Mastercard credit cards

This article has been updated. It was originally published Dec. 10, 2013.