Why Isn’t American Express Accepted Everywhere?

It’s disappointing when you are planning to use your American Express card for a big purchase only to find out that the Merchant doesn’t accept it.  Since beginning my relationship with Amex this year, I have run into this issue several times.

I was recently frustrated because our local Dentist wouldn’t accept our American Express for a nearly $700 charge.  It was a new card for us and we were in the process of earning the sign up bonus, so the $700 would have been very helpful.  That card also offers 3x points on all purchases, which is a solid return.  Sadly, I had to go back to the drawing board to figure out which of our other cards would get us the best reward.  I decided on the Capital One Venture Mastercard which earns 2% on all purchases.  Although it didn’t apply to our Amex spend, we still captured a decent amount of points.

This made me wonder why American Express is not more widely accepted.  What I found out is that Merchants have to pay a transaction fee on credit card purchases.  Visa and Mastercard fees are around 1.5-2.5% of the transaction amount while American Express charges around 2.5-3.5% and Discover is in the middle at around 2.75%. Businesses want to make money so the larger the cut they have to give to the credit card company, the smaller their profit is that they get to keep.  Since they inevitably get to choose which cards to accept, many small businesses where profits are already slim, forgo American Express and only take the lower fee cards.

So why does American Express charge a higher Merchant Fee? It is because they accept more risk than other credit cards.  Most Visa and Mastercards are backed by a financial institution which spreads out their risk, while American Express and Discover fund most of their cards themselves taking on a much higher percentage of the risk.  The higher merchant fee helps to cushion American Express against that higher level of potential loss.

So although it isn’t always convenient when you can’t use your Amex wherever you go, if you look at the perspective of small businesses fighting to stay alive, it makes sense.  Best case scenario, always have a solid back up card in your wallet just in case!