Why Do So Many Companies Refuse to Accept American Express?
When operating an online store, one of the most common complaints is the declining acceptance of American Express (AmEx) cards. However, the primary reason for this issue hasn't been widely discussed. This article aims to shed light on the complexities surrounding American Express and why many companies choose not to accept this payment method.
The Role of Higher Fees
Merchants face significantly higher fees when accepting American Express as compared to other major credit card networks. For instance, typical fees for Visa and MasterCard range from 1.5 to 2.5% of the transaction amount, whereas AmEx fees can be as high as double that rate. These higher fees add substantial financial strain, especially for small businesses that struggle to absorb additional costs.
Complexities of Accepting American Express
Each credit card network – American Express, Discover, MasterCard, and Visa – has its unique rules and requirements for merchants. Although payment services providers (PSPs) streamline much of this process, there are still specific situations where merchants must carefully navigate the rules. This additional compliance cost can be prohibitive, leading many retailers to avoid accepting AmEx cards.
The Impact on Online Stores
Online stores face additional challenges when dealing with AmEx. A common issue is friendly fraud chargebacks. Some customers intentionally buy products using AmEx but then deliberately call their bank or American Express to cry foul. Even when the merchant provides proof of delivery and fulfillment, AmEx often rules in favor of the customer, making it nearly impossible to win such disputes.
Trust and Widespread Awareness
Another significant factor is the lack of awareness of American Express in many markets outside the United States. In regions where AmEx is less recognized, merchants might feel reluctant to accept it as a payment method, given the low number of cardholders.
American Express: A Historical Business Decision
American Express initially positioned itself as a premium card, appealing to high-spending customers. As a result, they required AmEx customers to carry other cards to make everyday purchases. This strategy, while initially driving sales, also led to a self-imposed limitation in terms of merchant acceptance. Largely because of AmEx's high fees and notoriously lenient chargeback policies, many merchants choose not to accept this payment method.
Competitors and Strategic Moves
Other credit card networks like Discover have taken strategic measures to increase merchant acceptance. For example, Discover offers a "cash over" feature at participating retailers, allowing customers to receive cash back from their card purchases, similar to a debit card transaction. Additionally, Discover addresses the issue of carrying multiple cards by appealing to customers who do not yet have a credit card, thus creating a wider pool of potential users and merchants who would benefit from accepting it.
Conclusion
While American Express remains a desirable card for many high-spending customers, its high fees and complex regulatory framework often deter merchants from accepting it. The combined impact of higher transaction costs and the reluctance of potential customers to carry multiple cards limits the widespread acceptance of AmEx. As a result, many companies find it more economical and practical to avoid accepting this payment method.
Understanding these dynamics can help both online stores and merchants make informed decisions about their payment acceptance strategies. By recognizing the challenges and exploring alternative solutions, it is possible to find a balance that suits both the merchant and customer needs.