Question
Partial quote of article from Wall Street Journal March 15, 2007
New Tier on Visa Card
To Lift Fees on Merchants
By ROBIN SIDEL
March 15, 2007; Page C3
The nation's merchants will soon start paying more when some big spenders pull out their plastic.
Next month, Visa USA Inc. will set a new tier on its high-end "Signature" line of credit cards that will be aimed at consumers who spend more than $50,000 a year on their cards. Merchants will pay, on average, 14% more per transaction when cardholders pay with a "Signature Preferred" card compared with a regular Signature card.
Unlike other new products, Visa isn't planning a splashy campaign to promote the new tier, which is expected to offer more perks for cardholders. Instead, it will be up to card-issuing financial institutions to decide whether they will bump up customers to the new level by issuing new plastic or just adding the features to their current Signature card.
Visa has quietly introduced the product to its card-issuing financial institutions in recent weeks. The San Francisco-based card association, which is owned by thousands of banks, will launch the new level on April 14. It declined to disclose which banks will offer the Signature Preferred level.
Answer
will be interesting to see what banks, what requirements, and what benefits..
Answer
I'm guessing this is their response to Mastercard World Elite?
Answer
I'm guessing this is their response to Mastercard World Elite?
More than any thing else it is just a way to get more money from the retailers. When Visa signature was introduced it was said that the card was for households >100-250K? (i forget). Suddenly every rewards card is a signature card. Apparently the avg spending on the Signature line of cards from the article is 26K ... well below the avg on an amex card (which is not surprising as most here have said that they use visa when amex is not accepted). I think it is the banks that will decide whether to issue it or not (visa guideline is 50K annual spending). And i think banks will use it to bump the annual fee & visa will just be as happy as long as they get more from every transaction. I seriously doubt it will accomplish the goal of poaching amex customers as stated in the article.
Answer
The implied trend I am watching w/ increasing frustration, as a merchant who accepts credit cards, is these card issuing companies that jack up the discount rates charged to merchants who have no way to know if a card is a "signature" card or not. When an AMEX, V, MC or Discover is presented, we take it without any way to know if its one of these "prestige cards".
So, for Visa to jack up the discount another 14% above the negotiated discount is not unlike you passing through a toll gate...and being told at the END of the tollway your rate has changed on you, even though you *thought* you knew your toll (discount fee) when you entered the tollway.
This is ominous.
Answer
...merchants who have no way to know if a card is a "signature" card or not. When an AMEX, V, MC or Discover is presented, we take it without any way to know if its one of these "prestige cards"....Are you implying you'd turnaway the customer if you knew the card type in advance?
Answer
no one else does this though, do they? so you're saying this is ominous if VI starts a trend?
rrgg, people turn away AMEX for this reason..
Answer
Are you implying you'd turnaway the customer if you knew the card type in advance?
Won't turn them away; will add a "convenience fee", similar to what the IRS allows when they allow for tax payments via a 3rd party merchant who then passes along a "convenience fee".
Or, in the venacular that all credit card companies allow (because we would never charge a sur-charge, right ??)...we stipulate our advertised prices are "cash prices".
A merchant gets into trouble w/ credit card companies in at least these two ways w/ respect to adding convenience fees (there may be others): A) openly charging a SURCHARGE when a credit card is presented and calling it a SURCHARGE (this is a no-no); legally, and IAW all credit card issuers' policies, the work-around is to advertise that prices are CASH PRICES, which then implies a credit card price is different. This has been tested by lawsuit BTW and is legal and proper, and then B) by openly discriminating one card vs another. One of our customers "reported" my company to AMEX for adding this convenience fee...AMEX dutifully called me and asked me if a) "did I charge a fee" (yes), b) "did I charge a different fee for AMEX than for MC/V" (no), ..."thank you very much and thanks for being an AMEX merchant". That was the end of that call.
Answer
no one else does this though, do they? so you're saying this is ominous if VI starts a trend?
Oh yes...this practice already takes place. So its not a "new trend", per se...but a "growing trend" I should call it.
The problem is there is virtually no way that I know of for a merchant to have any way to know what the underlying card is. I am half-guessing the mega-merchants (Walmart, Target) have squeezed this variable cost into insignificance...but for small merchants, thus far, the cc issuer calls the play.
Shame that Discover is not more powerful than it is...w/ AMEX, V, and MC in a 3-way tri-oligarchy, there is precious little competition when it comes to the "gotchas" these companies make merchants abide by. Does anyone think MC, V, or AMEX would allow ONE OF THEIR would-be FIXED COSTS vary by as much as 14% stand without resistance ? Can anyone imagine Visa International corporate HQ allowing their electricity provider...to send them a bill based on a negotiated rate plan...and then add a 14% variable cost after the fact and non-negotiable ?
Answer
what other cards have higher merchant fees than their network standard??
Answer
While I get frustrated at merchants who refuse to take American Express, I sympathize with merchants who agree to take a credit card (be it MC, Visa, or Amex) and now find themselves confronted with "premium" versions of these cards which carry higher transaction fees.
The merchant has no way of discriminating which card carries what fee and the credit card companies can just create higher and higher levels, with corresponding increased fees. A merchant may be able to refuse Amex because of higher fees, but cannot refuse Visa Signature while accepting regular Visa.
When confronted with a merchant who demands a minimum for credit cards, I will inform them that this is against the rules, but it rarely does any good, though once in a while I will say I plan to report them to Visa/MC/Amex.
fuzz
Answer
Yes I know some merchants don't allow amex for this reason.
However, this is totally different. I don't see how the "cash prices" argument applies here. That argument only holds if you charge the same fee to all credit cards. If you have a merchant bank contract for VISA, then it's for all VISA. ILUVCITIBANK wants to charge extra for a specific type of VISA. How do you explain giving the "cash price" to a Gold VISA holder then if you don't give it to Signature Preferred? I'm not saying VISA is acting fairly. I just don't see how you could do this and comply with the merchant bank agreement.
Answer
I wonder what effect, if any, this so-called "Gratis Card" will have...
http://flyertalk.com/forum/showthread.php?t=671064
http://businessweek.com/bwdaily/dnflash/content/mar2007/db20070313_537730.htm?chan=top+news_top+news+index _companies
fuzz
Answer
again, this will be the first card to charge an ADDITIONAL fee on top of the network fee, right?
and while that new venture by Case is interesting, i personally dont care about APRs, FOREX, merchant fees, etc as much as rewards..
Answer
last couple of weeks of bought new changes to the CC market...does this have anything to do with the fact that the Senate hearings are going on againsty CC companies and their super highr rates that have put unfortunate people in huge debt amounts?
also the fact that recently mortgage companies and banks are starting to tighten their belts towards borrowers...due to the alarming number of foreclosures hitting the market....
I see some changes happening in the next 6-12 months which will a drastic impact on American society...
If CC companies are forced to reduce their interest rates to customers, someone else will have to pay....the merchant...which will be passsed on to the consumer so basically the same thing....or less usage of credit cards which in turn will lower consumer spending which in turn will lead to depressed economy due to the fact that the US economy hinges on consumer spending...
Answer
Yes I know some merchants don't allow amex for this reason.
However, this is totally different. I don't see how the "cash prices" argument applies here. That argument only holds if you charge the same fee to all credit cards. If you have a merchant bank contract for VISA, then it's for all VISA. ILUVCITIBANK wants to charge extra for a specific type of VISA. How do you explain giving the "cash price" to a Gold VISA holder then if you don't give it to Signature Preferred? I'm not saying VISA is acting fairly. I just don't see how you could do this and comply with the merchant bank agreement.
rrgg, there must be a misunderstanding. If I caused it, sorry. I DO NOT wish to have different fees for all the variations of a credit card...there far too many to keep up with. I think the point is it is very frustrating to have these "underlying variables" being thrown at us, as a merchant, which we not only have no control over, but are expected to be silent and just accept it as status quo. I cannpt believe a Walmart or Target will allow for such, so implicitly I suspect V/M-C/AMEX are shoving this down the throats of merchants that have little leverage to do anything about. I fully realize the convenience fee, or the credit card price above the cash price, must be blended/the same for all cards. It would be a nightmare to have each sub-type of a credit card have a different rate.
Answer
what other cards have higher merchant fees than their network standard??
I can't quote the variations off the top of my head, but I am certain there are numerous layers of cards...debit cards...credit cards...signature cards...gold cards...affinity vs non-affinity...for each of these there are developing a specified "add" above the base negotiated standing discount fee charged to a merchant. it is dizzying, not to say cumbersome. Not to mention what's the use to negotiate a standing discount...if the ccard issuer can just add all of these gotcha fees on the backend ?
Answer
I wonder what effect, if any, this so-called "Gratis Card" will have...
http://flyertalk.com/forum/showthread.php?t=671064
http://businessweek.com/bwdaily/dnflash/content/mar2007/db20070313_537730.htm?chan=top+news_top+news+index _companies
fuzz
With EU forcing banks to join its network and novel ideas like this VI/MC/AX will have a tough time. I can see all the 'store' credit cards immediately moving to this. More the low end card business is taken away from the big 3, more they will have to fight for the higher end market => more perks, rewards etc => more annual fee! i think we are heading towards avg 200-500 high end cards even from MC/VI. That will make me get rid all the 20 different cards that i have! :rolleyes:
Answer
Bascially, what they are talking about is making it so the card is automatically comming in under the Mid-Qual rate instead of the Qualified rate. Basically extracting an Extra 1-2% from the merchant.
This only effects small businesses. A large retail chain will give their merchant bank the middle finger if they attempted to charge the fee. (Target, WalMart, CVS, etc.) Which is also why those retailers only earn a baseline or reduced reward.
Merchants cannot put a surcharge on a Credit Card transaction. They can offer a cash discount accross the board, but that's about it. It would also be against the merchant agreement to decline a card based on it's affinity or program.
These kinds of rules will likely result in merchants making a shift to debit programs over credit card.
Answer
While I get frustrated at merchants who refuse to take American Express, I sympathize with merchants who agree to take a credit card (be it MC, Visa, or Amex) and now find themselves confronted with "premium" versions of these cards which carry higher transaction fees.fuzz
And of course you know, or need to know, that any merchant can simply refuse to sign up as an AMEX or Discover merchant. In this case, denying a consumer the right to use one of those cards is simply because the merchant declined to sign up w/ the issuer. No ill-intent intended. Any given year, and I mean this literally, I could and would cancel my agreement w/ AMEX if they hassled me about any policy I offer....its that tenuous w/ me. After all, AMEX already has higher discount by far (I send about $300K their way annually as a merchant). Most of my customers would simply switch to V or MC with no issues since they, *too*, are merchants and know the pains of dealing w/ AMEX. AMEX has a high opinion of themselves and genuinely believes accepting their card can bring incremental business (or not)...not in my world....I do not necessarily think I would lose any sale at all over accepting AMEX< or not. Now V or MC...different story.
The merchant has no way of discriminating which card carries what fee and the credit card companies can just create higher and higher levels, with corresponding increased fees. A merchant may be able to refuse Amex because of higher fees, but cannot refuse Visa Signature while accepting regular Visa.fuzz Exactly. Even if I knew what the sub-type of card was being presented, it would foolhardy, against merchant agreements, and really just a waste of time to add 4% here or 8% there. The point of my concern all along is that the card issuers are adding variable costs, at their discretion solely, without disclosure or a way for me to even know what type of card was presented. How about those terms ? I doubt many of us would agree to such terms...for ccard -accepting merchants, this is the norm. Odd. And uncomfortable. Unless one is a big walmart or target and can twist the tiger's tail a bit.
When confronted with a merchant who demands a minimum for credit cards, I will inform them that this is against the rules, but it rarely does any good, though once in a while I will say I plan to report them to Visa/MC/Amex.
fuzz
The classic example of this is the auto dealer...who accepts ccards in the service and parts dept...but usually has a VERY LOW threshold on accepting ccard payment for a high-value car. Yeah, they might accept $2-$3K on a credit card for the downpayment...but try to buy the *whole* car w/ a credit card. Can a Chevy dealer accept giving up 2-3.5% on a new Chevy sale ? Few will...and only under duress when they have to move a car.
Will any ccard issuer *ever* cancel a merchant agreement w/ an automobile owner/dealer over this very obvious discrimination ? Of course not.
Answer
And of course you know, or need to know, that any merchant can simply refuse to sign up as an AMEX or Discover merchant. In this case, denying a consumer the right to use one of those cards is simply because the merchant declined to sign up w/ the issuer. No ill-intent intended. Any given year, and I mean this literally, I could and would cancel my agreement w/ AMEX if they hassled me about any policy I offer....its that tenuous w/ me. After all, AMEX already has higher discount by far (I send about $300K their way annually as a merchant). Most of my customers would simply switch to V or MC with no issues since they, *too*, are merchants and know the pains of dealing w/ AMEX. AMEX has a high opinion of themselves and genuinely believes accepting their card can bring incremental business (or not)...not in my world....I do not necessarily think I would lose any sale at all over accepting AMEX< or not. Now V or MC...different story.
Exactly. Even if I knew what the sub-type of card was being presented, it would foolhardy, against merchant agreements, and really just a waste of time to add 4% here or 8% there. The point of my concern all along is that the card issuers are adding variable costs, at their discretion solely, without disclosure or a way for me to even know what type of card was presented. How about those terms ? I doubt many of us would agree to such terms...for ccard -accepting merchants, this is the norm. Odd. And uncomfortable. Unless one is a big walmart or target and can twist the tiger's tail a bit.
A similar example of an "against the merchant agreement" practice that happens every day all around us is the auto dealer who accepts ccards in the service and parts dept...but usually has a VERY LOW threshold on accepting ccard payment for a car purchase. Yeah, they might accept $2-$3K on a credit card for the downpayment...but try to buy the *whole* car w/ a credit card. Can a Chevy dealer accept giving up 2-3.5% on a new Chevy sale ? Few will...and only under duress when they have to move a car.
Will any ccard issuer *ever* cancel a merchant agreement w/ an automobile owner/dealer over this very obvious discrimination ? Of course not.
Answer
Will any ccard issuer *ever* cancel a merchant agreement w/ an automobile owner/dealer over this very obvious discrimination ? Of course not.
A merchant really doesn't have to discriminate per se. It's unlikely that the merchant bank would allow 30K transactions with out having the dealer jump through a number of hoops. The dealer would simple refuse to jump thus be limited to a few thousand dollars.
Answer
And of course you know, or need to know, that any merchant can simply refuse to sign up as an AMEX or Discover merchant. In this case, denying a consumer the right to use one of those cards is simply because the merchant declined to sign up w/ the issuer. No ill-intent intended. Any given year, and I mean this literally, I could and would cancel my agreement w/ AMEX if they hassled me about any policy I offer....its that tenuous w/ me. After all, AMEX already has higher discount by far (I send about $300K their way annually as a merchant). Most of my customers would simply switch to V or MC with no issues since they, *too*, are merchants and know the pains of dealing w/ AMEX. AMEX has a high opinion of themselves and genuinely believes accepting their card can bring incremental business (or not)...not in my world....I do not necessarily think I would lose any sale at all over accepting AMEX< or not. Now V or MC...different story.
Exactly. Even if I knew what the sub-type of card was being presented, it would foolhardy, against merchant agreements, and really just a waste of time to add 4% here or 8% there. The point of my concern all along is that the card issuers are adding variable costs, at their discretion solely, without disclosure or a way for me to even know what type of card was presented. How about those terms ? I doubt many of us would agree to such terms...for ccard -accepting merchants, this is the norm. Odd. And uncomfortable. Unless one is a big walmart or target and can twist the tiger's tail a bit.
The classic example of this is the auto dealer...who accepts ccards in the service and parts dept...but usually has a VERY LOW threshold on accepting ccard payment for a high-value car. Yeah, they might accept $2-$3K on a credit card for the downpayment...but try to buy the *whole* car w/ a credit card. Can a Chevy dealer accept giving up 2-3.5% on a new Chevy sale ? Few will...and only under duress when they have to move a car.
Will any ccard issuer *ever* cancel a merchant agreement w/ an automobile owner/dealer over this very obvious discrimination ? Of course not.
I agree with you that Amex tends to have a high opinion of itself, claiming that the average user spends more, so merchants should accept their higher discount fees. I do have to carry a backup card to my SPG Amex. Since that is currently the Amtrak card, I am looking for a decent cashback Visa or MC. I haven't figured out the best one, currently. Suggestions?
I think car dealers are a somewhat special category in that it's one of the few areas where bargaining on the price is commonplace. If the dealer readily offers to take a credit/charge card, then you could probably get a better price by paying with cash or check. I thought there was a discussion before where car dealers do have a clause that says they can limit the amount being charged.
I bought a chair from a furniture store yesterday and they do not take Amex. Moreover, they give a 6% "cash discount" off the posted prices. They allow 10% to be paid with CC and the remainder must be cash or check to receive the discount.
I do agree that it is unfair to the merchants for Visa/MC/Amex to have different discount fees for different levels of cards, but then force merchants to take all or none.
How do you get around the minimums that some merchants/restaurants/etc. impose? That's clearly in violation of merchant agreements, is it not?
I once was told at a store that the reason they did not accept Amex was that Amex took an exceptionally long time to send the merchant their money. Do you find this true?
The public seems to be very into rewards cards, but obviously the cost of that comes out of someone's pockets...
fuzz
Answer
I think car dealers are a somewhat special category in that it's one of the few areas where bargaining on the price is commonplace. If the dealer readily offers to take a credit/charge card, then you could probably get a better price by paying with cash or check. I thought there was a discussion before where car dealers do have a clause that says they can limit the amount being charged.
Hotels and Airlines have a whole set of rules and exceptions. Which is why it's harder to dispute with them. I didn't see anything specific for car dealers in my merchant agreeements like I saw for travel related services. However, as noted above, getting an account that will accept a 30K charge is a big deal.
I bought a chair from a furniture store yesterday and they do not take Amex. Moreover, they give a 6% "cash discount" off the posted prices. They allow 10% to be paid with CC and the remainder must be cash or check to receive the discount.
The cash discount is a common way to get around merchant rules. Although 6% seems quite high in terms of merchant fees. 3% is more or less the norm. The place may be discounting more because it's easier not to pay taxes on cash and checks. ;)
How do you get around the minimums that some merchants/restaurants/etc. impose? That's clearly in violation of merchant agreements, is it not?
You can't get around it. You can get slapped with a pretty good fine if you get caught doing it. That being said, it's a pretty narrow view by the store. Companies like McDonalds found that on the whole people ordered more food when they weren't counting cash. In the end, the few times where an order was unprofitable was made up for by the general increase in volume.
I once was told at a store that the reason they did not accept Amex was that Amex took an exceptionally long time to send the merchant their money. Do you find this true?
fuzz
Amex takes longer than V/MC by a day or two max. Usually the same time frame as Discover and JCB. For small businesses Amex only charges a flat $5 monthly fee with No Discount Rate. From that stand point they are much cheaper than V/MC. As long as you have the right level of volume at least. There are some months I have Zero Amex transactions however.
Answer
Amex takes longer than V/MC by a day or two max. Usually the same time frame as Discover and JCB. For small businesses Amex only charges a flat $5 monthly fee with No Discount Rate. From that stand point they are much cheaper than V/MC. As long as you have the right level of volume at least. There are some months I have Zero Amex transactions however.
I must not understand your comment that AMEX does not charge a discount rate for small business and only a flat $5. Can you re-state this ? AMEX is known for charging the highest discount rates of all cards, which is why many, many merchants single out AMEX and opt not to accept their card. It is common knowledge w/ most merchants that AMEX will be highest....V and MC essentially the very same...Discover (we take them but I don't recall the discount...so few customers ever present Discover (it is a true laggard IMO).
One of my long-standing theories as t why/how AMEX seems to offer the best "bang for the buck" of all card brands (AMEX/SPG, AMEX/HHONORS, AMEX/MR) is this ultra-stiff discount fee they charge the merchant...goes to support an incrementally-better rebate, be it Delta miles, spg points, hhonors points, or whatever), VS: V or MC rebates through any medium or affinity partner. So, no surprise why spg chose AMEX...how AMEX/HHONOS card can give 3:1 HHONORS points for all spend, and so forth.
As for settlement time, AMEX uses settlement time as one of the key variables for offering merchant "x" a better, or worse, discount rate. I once asked AMEX how we could get to a better discount rate (I think we pay 3.25% or so)...they countered with something like 3.15% if we would agree to a 30-day settlement instead of (IIRC our current 5-7day) settlement time. We laughed at the miniscule percentage for a tripling of the settlement time.
I will say this - AMEX has some of the most competent "customer retention" people I have ever encountered for merchant accounts (not speaking of the consumer side and credit card retention)...the few times I've taken it to that level w/ threats to drop AMEX as a card my business will accept, the reps that I've dealt wit were smooth and professional (more than one)...so ultimately I didn't drop AMEX. But if they ever hassled me about any aspect of my merchant account, or failed to support me on a chargeback (we've had a single one now in about 8 yrs of accepting AMEX), I would drop them immediately. They are literally a card company I could take or leave depending on how the wind is blowing.
Answer
I must not understand your comment that AMEX does not charge a discount rate for small business and only a flat $5..
I believe the reference is to this program...
If you expect to have less than $5,000 in annual American Express sales, and you submit, authorize, and receive payments electronically, you can pay a monthly flat fee of $5.95, with no additional charges if you manage your account online. Unlike the discount rate pricing plan, you will not pay a percentage of each American Express sale.
https://www209.americanexpress.com/merchant/singlevoice/USEng/FrontServlet?request_type=navigate&page=pricingPlan
Answer
I've seen this "new premium tier" business before. Visa Signature has never really had any impressive benefits; I think Avis Preferred Select was the only thing that was worth my while. But now Signature is as lame as every other level of Visa; maybe they'll reintroduce some of the Signature benefits in the Preferred tier, allowing the same old stuff to be remarketed as brand new.
When confronted with a merchant who demands a minimum for credit cards, I will inform them that this is against the rules, but it rarely does any good, though once in a while I will say I plan to report them to Visa/MC/Amex.
Usually walking out makes the point. Depending on a company's profit margin, losing a few sales entirely could cost them more than they're "saving" by demanding a minimum, in violation of their merchant agreement.
I think the point is it is very frustrating to have these "underlying variables" being thrown at us, as a merchant, which we not only have no control over, but are expected to be silent and just accept it as status quo.
I sympathize with you - it seems like a shady way of doing business to me for them to pull this on you.
On the other hand, I don't like companies that charge "privilege of doing business with me" fees like your firm apparently does. I hope you guys advertise this fact upfront to save those of us who don't like this type of shady behavior either from beginning a transaction that we'll end up cancelling when we hear about the "privilege" fee.
Although 6% seems quite high in terms of merchant fees. 3% is more or less the norm. The place may be discounting more because it's easier not to pay taxes on cash and checks.
Something seems up here because it seems unlikely that a merchant would have to pay a 6% discount rate, i.e. they're losing money with this discount versus taking cards.
Answer
there is no better deal for a small merchant than Paypal Amex rate is 2.2% discount as long as you do over 10k per month in combines charges of visa payapl amex discover ...and no hidden visa mastercard qualifying charges
Virtual Terminal allows you to accept phone, fax, mail, and in-person payments.
Standard Rate Merchant Rate (qualification required)
Monthly Received Payment (combined volume processed through both payment solution and Virtual Terminal) $0.00 USD - $3,000.00 USD $3,000.01 USD - $10,000.00 USD > $10,000.01 USD
Fees per transaction(for payments processed through Virtual Terminal only) 2.9% + $0.30 USD 2.5% + $0.30 USD 2.2% + $0.30 USD
Monthly Fee $20.00 USD
Qualify for lower fees with PayPal's Merchant Rate
When you've been a PayPal member for more than 90 days and your sales volume is over $3,000.00 USD per month, you'll be eligible for PayPal's Merchant Rate—less than the Standard Rate of 2.9% + $0.30 USD per transaction.
Eligibility for Merchant Rates is determined based on sales volume from the previous calendar month. To qualify for Merchant Rates, a seller must complete a onetime application and meet the Merchant Rate Criteria.
--------------------------------------------------------------------------------
here are the hidden fees most merchants pay
MasterCard & Visa Rate 2.25 % + 30 Cents per Transaction
Monthly Statement Fee $10.00
Monthly Minumum $25.00
* Above MasterCard and Visa rate is for Qualified Manually Keyed Transactions with AVS
* Mid-Qualified Transactions – Add .92 %
* Non-Qualified Transactions – Add 1.27 %
the above is considered a good deal as you can seee it can add to 4% easily ..some merchant rate can go to 6% ... and they hit for the extra rate for not keying in zero tax amount or not using an invoice number for some of the cards that require and invoice number be punched into the terminal
..bottom line paypal rules 2.2% no games no hidden fees NO BS
Answer
mia, thanks for the clarification.
Answer
Suddenly every rewards card is a signature card. Apparently the avg spending on the Signature line of cards from the article is 26K
I wonder if this is a hidden reason why Chase stopped the UA Signature gravy train. The additional accounts must have been depressing the spending average and Visa complained about it.
Answer
From the abstract: "Credit card transactions cost American merchants six times as much as cash transactions. Why, then, do consumers pay the same price for purchases, regardless of the means of payment? The answer lies in a set of credit card network rules known as merchant restraints. Merchant restraints forbid merchants from surcharging for credit and discounting for non-cash payments, while the framing effect, a well-documented cognitive bias, makes discounting for cash ineffective. Merchant restraints thus prevent merchants from pricing according to consumers' payment method and from signaling to consumers the costs of different payment methods. Accordingly, consumers never internalize the costs of their choice of payment system."
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=973974
Answer
I agree with you that Amex tends to have a high opinion of itself, claiming that the average user spends more, so merchants should accept their higher discount fees.
fuzz
The reason AMEX has this opinion of themselves is because it's true, in some sectors. Now, if someone is planning on going on vacation, it's not like they will spend more on a hotel just because they have an AMEX card.
However, the restaurant sector really benefits from AMEX users. My average check for AMEX users in my restaurants is almost 40% higher than that of Visa/MC users. I have almost a million transactions in my current business to back this up. I've also witnessed this myself in other restaurant chains over the years. Hence, it's very worth my while to pay AMEX a higher transaction/discount fee for their customers.
For those wondering how many different discount rates there are, here's an old Visa interchange pricing sheet. I'll hunt around for the most up-to-date interchange pricing document, but there are literally dozens of different rates for cards.
http://usa.visa.com/download/merchants/Interchange_Rate_Sheets.pdf
Answer
The reason AMEX has this opinion of themselves is because it's true, in some sectors. Now, if someone is planning on going on vacation, it's not like they will spend more on a hotel just because they have an AMEX card.
However, the restaurant sector really benefits from AMEX users. My average check for AMEX users in my restaurants is almost 40% higher than that of Visa/MC users. I have almost a million transactions in my current business to back this up. I've also witnessed this myself in other restaurant chains over the years. Hence, it's very worth my while to pay AMEX a higher transaction/discount fee for their customers.
For those wondering how many different discount rates there are, here's an old Visa interchange pricing sheet. I'll hunt around for the most up-to-date interchange pricing document, but there are literally dozens of different rates for cards.
http://usa.visa.com/download/merchants/Interchange_Rate_Sheets.pdf
Thanks for that info. Very interesting.
I am sure the big retailers have separate arrangements, too.
I wonder what kind of deal they had to cut Trader Joe's?
fuzz
Answer
... if someone is planning on going on vacation, it's not like they will spend more on a hotel just because they have an AMEX card...
It's also not likely that someone will spend more at a restaurant because she has an American Express card. The reasoning is the same in every category, American Express cardholders spend more on average than VISA or Mastercard or Discover cardholders because on average they have more disposable income.
Why? Originally, American Express marketed its charge cards to customers for whom cards were a convenience, allowing them to spend without carrying currency or writing checks, while banks marketed their VISA and Mastercard products to households that needed access to a revolving line of credit to bridge the gap between income and expenses. Subsequently American Express has marketed credit cards to the banks' customers and the banks have marketed VISA and Mastercards to clients who never use the revolving feature. The emergence of reward cards has further altered the landscape, but the original demographic difference persists. Bear in mind that these statistical truths tell us nothing about an individual cardholder, only about groups.
Answer
It's also not likely that someone will spend more at a restaurant because she has an American Express card. The reasoning is the same in every category, American Express cardholders spend more on average than VISA or Mastercard or Discover cardholders because on average they have more disposable income.
Why? Originally, American Express marketed its charge cards to customers for whom cards were a convenience, allowing them to spend without carrying currency or writing checks, while banks marketed their VISA and Mastercard products to households that needed access to a revolving line of credit to bridge the gap between income and expenses. Subsequently American Express has marketed credit cards to the banks' customers and the banks have marketed VISA and Mastercards to clients who never use the revolving feature. The emergence of reward cards has further altered the landscape, but the original demographic difference persists. Bear in mind that these statistical truths tell us nothing about an individual cardholder, only about groups.
I agree with your reasoning that they don't spend more because of the AMEX card. However, while I agree with some of your comments about early AMEX marketing, I would also point out that AMEX continues to be a solid choice for businesses when they hand out corporate cards. For example, pharmaceutical companies as a group use AMEX a lot, and thus their sales reps are infamous for walking into restaurants and buying very expensive meals for groups of doctors. Our higher average check with AMEX is definitely helped by some of these larger tickets, which we see much less frequently than VISA/MC users.
Answer
This is 100% opinion so take it as you like; but Amex has, as a rule a much better separation of charges on the bill then most MC/VI bills. For a business it is easier to find out who charged what and where. They will also separate billing to different people on one account so although it all gets paid by corporate, sales gets a bill, marketing gets a bill, etc.
-Dave
Answer
Is there any word on the expected cardholder benefits of this higher tier Visa Signature?
Answer
Boy this has been a long read and a few misconceptions as well. I hope I don't leave out anything.
Visa and Mastercard are not really any cheaper than American Express for the merchant. Merchants many times think so because they can't see the forest for the trees and also because the fees they see are caused by their issuing bank not AX.
A car dealership cannot get approved in most cases for the sale of a new car on VI or MC, it is against their processing agreement. AX however has no exclusion of what may be charged at a car dealership. Every merchant has a maximum ticket CAP and a monthly volume CAP established for them by their issuing bank as well. AX bases all their criteria on the cardholder not the merchant. Merchants are not usually told what their caps are and most banks consider it proprietary information. When a merchant establishes a merchant account they are setting up a credit line with the issuer based on their credit worthiness and business profile. Some merchants can only run a charge with a maximum of amount of $100.00, some the cap is at $1,000.00 and many are at $2500.00. Above $2,500.00 it becomes very difficult for a merchant to get approval, it does happen, but it is not easy. I very seldom approve a cap over $5,000.00 but their are caps as high as $50,000.00 out there.
The question about card types that the fees are different for is based on the interchange tier. The tiers are not only about the card type used but also the merchant type and credit. It is higher for World MC, Signature VI, Affinity, Corporate and International cards. All of these cards are at a different tier level.
Merchants can offer a cash discount but not for one logo'd card versus another, it is all or nothing.
Since all merchants have caps, it is obvious that you cannot charge any amount you want with any merchant with VI/MC. Many merchants sometimes split the charges up to get around this.
Paypal is not a good option for a real business as you lose many rights and support as a result. They are fine for an internet based business with low volume.
Answer
I did 100k last month with paypal thats not small change so paypal works for most merchants and the rate cant be beat.. also Paypal now owns Verisign and that gives them payflow pro.
I will never give up my real amex merchant account as you are correct paypal does have limits and when a customer wants to spend 50k in one phone call on Master Golf badges there is nothing like calling amex and getting an approval in 30 secounds
http://www.verisign.com/online-payment-processing/index.html
Answer
Is there any word on the expected cardholder benefits of this higher tier Visa Signature?
Thank you. That is what interests me. I, as a consumer, in general, could not care less about the merchant fee.
Answer
i think we need the thread split ;)
personally, i dont even care about benefits until someone ISSUES the card.
weve got two new credit card products (this and WEMC) and only saks has issued a card so far... strange IMHO