American Express Does Not Cost More

by Nick Coons
Jun 16, 2004

One of biggest pet peeves is going to a place, like a restaurant, and finding out that they don't take American Express. Their reasoning for it is that it is too expensive. Let me explain this a little, for those that have never been on the receiving end of a credit card transaction.

When you buy something with a Visa or Mastercard, the merchant processing company that the store uses takes about 1.5% off the top plus an extra $0.20 per transaction (each time they swipe a card). For instance, if you go to a restaurant a have a bill of $40.00, it'll cost them about $0.80, which means that the restaurant will get $39.20 when they charge you $40.00. That's pretty good for the privilege of being able to accept credit cards.

The amount that the merchant pays when taking your card is called the discount rate. American Express charges a higher discount rate than Visa and Mastercard, usually in the range of 3.0%.

You may be thinking, "Why don't places just charge more when accepting credit cards?" It's mainly because they are not allowed to. If found out, they could lose their privilege to accept credit cards altogether. Some places trying and weasel their way around that, like giving what they call a "cash discount."

So that same $40.00 transaction using American Express would cost the restaurant about $1.40, or about $0.60 more.

Somehow, the business that does not take American Express has decided that if they did accept it that everyone would use American Express and they would make $0.60 less on every single customer. This is ridiculous since most people will pay using whatever form they want. What does make sense is that as a customer who wants to use my American Express card, and I have a choice between two restaurants, one that accepts it and the other does not, there's a good chance that I'll choose the restaurant that accepts it even if that would otherwise not be my first choice, solely because I can use my American Express card.

So now, instead of making $0.60 less for taking American Express, they make $40.00 less from me because they don't accept it.