American Express has been around for a long time, and they have a good reputation when it comes to being trustworthy. However, there are so many card companies out there competing for your business, that an independent card company can be pretty competitive. With that said, does American Express really offers the best rate? To find out we need to take a look at how they operate, compare them side by side, and then decide which one you like best.
American Express doesn't have the strict brand guidelines like other major credit card brands. Since American Express doesn't have to answer to another bank for getting or issuing, the business is free to establish its own discount rates at whatever rate the economy will bear. So what Amex decided to do was establish a similar rate for all merchants, and not allow other merchants to add a special markup onto the discount rates. That freedom also means that American Express merchant account holders can shop around for the best deal and the most competitive pricing models.
The way American Express does business is rather simple, however, there are a few different ways to look at their structure of processing fees. First, Amex follows the “bass” pricing model, which is just an average across the board for discount cards and regular cards. Then, they add a small charge for specific types of transactions, such as cash advances, balance transfers, and access to the American Express travel rewards program. Finally, Amex charges more for some membership benefits, such as online access, as well as membership fees for some of their merchant accounts. In some ways, this makes American Express the polar opposite of their competitors.
As you can see from the above paragraph, American Express uses different pricing models in different segments. Interestingly, this is a smart strategy for American Express, because it forces them to be more flexible with their pricing models. By allowing their merchant account processing partners to charge whatever they like for certain services, American Express can take a more aggressive stance with their pricing. For example, if they find that a particular processor is charging too much for a particular service, they simply raise their rates to offset the difference. But if the processor offers too low of a discount, they might also reduce their fees.
But in addition to these fees that American Express charges for each transaction, there are other fees that go beyond basic interchange rate fees. For instance, American Express requires their processor to charge an annual membership fee. This fee, called a surcharge, is added to the discount rate of the card. In some cases, Amex will not permit its processors to charge membership fees at all. And, in order to be permitted to process credit cards, merchants need to have an American Express merchant reference guide.
The idea behind the American Express merchant reference guide is to prevent merchants from taking advantage of consumers. This is especially true when it comes to online merchants. When you run an online business, especially one that takes a large percentage of consumers through its doors, then you are taking on an additional layer of fees on top of your service fees and membership fees. For this reason, you must use the membership fee as an opportunity to negotiate additional discounts with your processing partner. Amex's rules are designed to prevent this sort of behavior. This may be the only reason why many online processing companies choose to use AMEX instead of another payment processor.
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