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Why Do So Few Retailers Accept American Express?

Credit Card Basics, Credit Cards
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If you’re an American Express card member, you’ve probably heard this before: “Sorry, we don’t take American Express.” It’s an inconvenience and an annoyance for you, but have you ever wondered why some retailers don’t take AmEx? Turns out that while your card earns great rewards for you, it can be pretty costly for merchants.

No fees, please

The basic reason that many retailers – particularly small businesses – won’t accept American Express is because of the fees the company charges businesses when customers swipe their card. AmEx charges a retailer around 3.5% whenever a customer pays with one of their cards; by contrast, Visa and MasterCard charge around 2-3%, and sometimes less for debit cards. While this may not seem like much, many small businesses operate low-margin businesses where even a percentage makes a difference.

Big spenders, big profits

So why does American Express charge higher swipe fees, especially if it knows that so many retailers won’t accept the card because of them? The short answer to this question is that American Express has a slightly different business model compared to many other credit card issuers.

In general, most credit card companies make their profits from interest charges. But American Express relies on annual fees charged to customers and swipe fees from merchants to make money. This means that the company is unlikely to lower the fees it charges retailers, unless they were to undergo a major change to the way the company operates.

It’s also important to note that American Express is popular among a wealthier clientele. Most AmEx customers are shopping primarily with plastic, and in stores that gladly accept their preferred credit card. These big spenders are generating plenty of income for the company through the swipe fees they rack up – according to the Wall Street Journal, American Express’s profits rose by 4.9% in the second quarter of 2013 alone.

Is it worth it?

Between high annual fees and spotty retailer acceptance, many customers wonder if it’s worth it to own an American Express card. The answer to this question largely depends on the kind of lifestyle you lead and the perks you’re looking for in a credit card.

For example, The Platinum Card® from American Express is often panned for its high annual fee, and $550 is hardly chump change. But if you frequently travel internationally, that fee could end up paying for itself. This is because with this card you’ll have free access to over 1,000 airport lounges worldwide, a privilege that would cost about $400 if purchased on its own. Add this to the savings you’ll get with the annual $200 airline fee credit and $200 Uber credit, and that $550 fee doesn’t seem so bad.

That said, it’s generally a good idea to carry a backup no annual fee Visa or MasterCard for those instances where AmEx isn’t accepted.

The takeaway: The reason that American Express isn’t accepted at all retailers is because of its high swipe fees, compared to other credit cards. AmEx uses these fees to make the bulk of its profits, so its unlikely they’ll lower them anytime soon. However, this doesn’t mean that it’s useless to get an American Express card. Consider all your options to figure out which type of plastic is right for you.