American Express is a major player on the consumer credit scene.
Along with Visa and MasterCard, American Express is one of three credit cards that dominate retail in the U.S. But while Visa and MasterCard are nearly ubiquitous, American Express's coverage doesn't seem to be quite as complete. There's a reason for that, and it's because even though American Express is comparable to other credit card companies, it also has some important distinctions for merchants.
As a small business owner, you'll need to use discretion and common sense to determine whether or not to include American Express as a payment option. Most retailers and service providers decide that Visa and MasterCard are no-brainers, while slightly fewer retailers choose to accept American Express. By choosing to accept American Express, you undoubtedly make it easier for consumers to purchase your products and services, but broader reach has a price.
American Express Overview
American Express has a reputation for catering to a slightly higher income demographic than Visa and MasterCard. According to American Express, their cardholders report spending 2.5 times as much as non-cardholders and the average cardholder income is 1.4 times non-cardholders. The company is also known for issuing iconic color-coded cards to cardholders including Gold, Platinum, and the elite Centurion (or Black) card. For companies that sell luxury goods or B2B products, the ability to accept American Express is a non-negotiable business requirement.
American Express charges merchants either through a merchant discount rate or a flat-fee (American Express chooses the payment method based on usage). Unlike other credit card companies, American Express plays the role of the network provider, the acquirer, and the issuer. This means AmEx keeps the entire merchant's discount rather than sharing it with an acquirer and issuer. Yet American Express also charges a higher discount rate than the other major credit card companies. While Visa and MasterCard charge a discount rate of 1.9% of transactions, American Express charges 2.56%.
For small businesses, the benefit of the AmEx approach is that you only have to deal with a single company. Instead of having to deal with an acquirer for payment processing and an issuer for chargebacks, everything is funneled directly through American Express. The downside, of course, is that you'll pay an extra 66 basis points on your transactions.