Managing and continuing to accept American Express credit cards from your customers can be challenging. That’s because of the high American Express interchange rate they charge. However, the Amex OptBlue program has come to your rescue as it is associated with lower charges and remarkable discount rates, especially for small businesses. Let’s discuss interchange rates and understand the concept. Finally, we will discuss why Amex interchange rates are different.

What is an Interchange Rate?

An interchange rate, sometimes known as a swipe fee, is a flat fee that credit card networks and banks charge retailers to cover the risk of making electronic transactions. It is a risk management fee that covers any risks associated with credit card transitions because no physical currency is exchanged here.

In other words, credit card providers charge an interchange fee to mitigate the risks of credit card fraud, which may incur financial losses. Someone has to pay for such losses in case of fraudulent activities, and the merchant is the one who does that. Therefore, the interchange fee is charged against every debit and credit card transaction.

The money the retailer receives is divided between the customer’s card-issuing company and the merchant services provider, also known as the payment processor. In the case of credit card payments, the interchange rate is also termed the card issuer’s reimbursement fee. Here, the interchange cost is borne by the merchant bank that accepts the draft to the card-issuing bank. Finally, the bank passes on this charge to the cardholder.

In short, almost any financial institution or entity that accepts card payments will incur these swipe fees on the merchant. Not-for-profit organizations are not exempted from these charges because they accept donations through credit or debit cards. So, even while accepting charities, they must pay specific interchange fees for accepting card transactions.

Purpose of Interchange Rate

Let’s discuss why interchange fees are charged in detail.

• Compensation for card-issuing banks: Swipe fees compensate the cardholder’s issuing bank. They include the costs of services like issuing and maintaining the card, managing the risks associated with extending credit limits and managing all the related accounts.
• Network maintenance: Interchange charges cover the card network’s maintenance and operations. It covers all costs involved in maintaining the network infrastructure, taking prompt fraud prevention measures, and providing other services to the cardholder.
• Incentivizing issuing banks: When higher interchange charges are levied, it helps to incentivize the card-issuing banks to promote the payment cards to the cardholders. As a result, it encourages customers to make payments using the cards to enjoy benefits and rewards. It also benefits the card networks and issuing banks.
• Acquiring charges: An acquiring bank is the merchant’s bank receiving payments from the retailer’s bank account for further processing. All acquiring banks must pay interchange fees, which help cover the expenses associated with processing card payments on the issuing bank’s end. The interchange fee also covers incentives offered to issuing banks to provide card acceptance solutions.

The swipe fees are different from any other charges incurred by the business. These may include merchant service charges that the payment processors or acquiring banks may charge for managing card payments on the merchant’s behalf. However, some jurisdictions have revised or restricted interchange fees as they affect the organization’s cash flow and customer prices.

How Are Interchange Rates Determined?

The interchange rate is decided by the card issuers, such as Visa, Mastercard, American Express, Discover, etc. These rates are based on covering the credit risks and handling transactional charges inherent in every card payment.

The interchange fee is also determined depending on the average cost of funds incurred by the bank and the cost of authorization. These rates are subject to change twice yearly, and the financial institutions may revise them occasionally.

The interchange fee depends on the interchange rate. It is charged as a flat fee or a percentage of the total transaction amount. Sometimes, a combination of these charging norms can be applied while determining the interchange fee of a particular card. This swipe charge also varies depending on the type of payment made by the customer and the merchant’s specific industry. Furthermore, different cards, such as debit cards, credit cards, and prepaid cards, charge different interchange fees.

For example, debit card payments usually incur lower interchange rates than credit card transactions. Credit card payments are associated with higher fraud risks, such as bad debt and non-payment of the bill.

On the other hand, cash payments have no interchange fees since there are usually no risks involved, and the merchant receives physical currency instantly. Therefore, merchants should encourage customers to pay via debit cards or cash to minimize interchange fees.

Let’s sum it up. Interchange fees are calculated based on the following factors:

• Card type: Different card types have different interchange costs. For example, there will be varying interchange rates for business cards, prepaid cards, rewards cards, and premium cards. These cards usually have higher interchange rates compared to standard credit or debit cards. That’s because issuing banks use these swipe fees to fund their periodic rewards programs.
• Mode of payment: The transaction method also affects the interchange rates. For instance, card-not-present transactions usually have higher rates than card-present payments. As the name suggests, in card-not-present transactions, customers can make over-the-phone or online payments, whereas, in card-present transactions, the customers swipe the cards physically to complete the transaction for their purchases. Customers must tap, insert, or swipe the card at the POS (point-of-sale) terminal during checkout in a card-present transaction.
• Size of transaction: The interchange charge is usually calculated as a percentage of the total transaction amount, over and above a flat fee. Therefore, larger transaction amounts levy higher interchange rates.
• Processing information: The method by which the payments are processed will also influence the interchange rates. For instance, transactions wherein the card details are keyed in manually may have higher interchange rates. That’s because, in such payment types, the funds may not get settled immediately and may take longer than other payment methods. Also, keyed-in transactions may be associated with higher fraud or technical error risks, hence the higher rates of managing such risks.
• Merchant category code (MCC): The merchant category code (MCC) refers to the unique code given to the merchant to help credit card providers classify several purchases based on the type of the retailer, such as the industry they belong to and the kinds of products or services they deal with. The MCC is a four-digit number that classifies the business’s goods and services.

Therefore, the type of industry also affects interchange rates. Different business categories are associated with varying levels of risk. Furthermore, every company’s average transaction size differs, further impacting the interchange rates.

• Cross-border transactions: Interchange rates differ significantly for cross-country payments. Funds transferred across two nations incur higher interchange rates than domestic transactions. In a cross-border transaction, the merchant and issuing bank are from two diverse nations, so there will be currency differences. In such cross-country transactions, the interchange rates depend on the jurisdictions and regulations of the two varying regions. So, the payment processing and fund transfer procedures are more complicated.

Almost every card network considers these factors when calculating interchange rates. They revise and publish their interchange fees twice yearly, especially in April and October. The interchange fees can vary periodically, but in the European Union, the consumer card swipe fees are fixed at 0.2% for debit cards and 0.3% for credit cards.

Comparison of American Express Interchange Rates with Other Card Networks

American Express often acts as both the card network and the issuing bank, so its operations differ slightly from those of other card networks. In the US, the interchange fees of American Express cards usually range between 1.43% + 10 cents and 3.30% + 10 cents per transaction.

Usually, the Amex interchange rates are higher than those of other card networks. In other words, merchants would need to pay more to accept payments via American Express cards than Visa or Mastercard credit cards. Visa and Mastercard usually don’t charge more for higher transaction amounts. So, it doesn’t matter how much money the customer is spending.

However, the interchange rates depend on the payment amount for American Express transactions. The higher the amount the customer pays, the higher the swipe fees. That’s because Amex credit cards are generally used by affluent customers who can afford to spend more.

So, Amex cardholders will experience higher total spending than those who make the same purchase through Visa or Mastercard cards. While this expense can become unmanageable for some cardholders, the American Express OptBlue pricing model is here to solve this age-long issue.

How American Express OptBlue Can Help?

The newly launched American Express OptBlue program enables merchants to handle and afford the Amex card interchange fees. This pricing model is designed to help retailers enjoy specific discounted wholesale rates while accepting Amex cards. If you are not processing less than $1 million in Amex transactions in a year, you can qualify for the OptBlue program. It’s a boon for small business owners.

The OptBlue program is specifically designed for small businesses and startups who find it challenging to accept Amex cards, primarily because of the affordability factor. So, the program encourages them to start receiving American Express card payments without feeling any burden of paying hefty interchange rates. Therefore, small businesses can also offer higher value to their customers by catering to their preferred payment modes and convenience. They can serve American Express cardholders without letting them go, which means more business for startups and SMBs.

Will Accepting American Express Cards Worth It?

Are you wondering whether it will be worth accepting Amex cards? The answer lies in how much value you wish to offer your customers. If you wish to make your clients feel more valued by catering to their payment needs, accepting Amex payments will be worth it, as long as your objective is building brand loyalty.

Moreover, by offering the option of Amex card payments, you give more importance to the customer’s convenience, thus enhancing customer satisfaction rates. Otherwise, you might have to lose your Amex customers. Also, by not accepting American Express cards, you are telling them that you are not valuing their convenience; instead, you worry about your interchange rates more, which is not a good sign of professionalism.

Additionally, with the new Amex OptBlue program, you can save more than traditional interchange charges associated with Amex card transactions. Even if you are still required to pay more on swipe charges than Visa or Mastercard, this pricing plan will help you eliminate the excess charges in accepting Amex cards.

4 Ways American Express Interchange Rates are Different from Other Cards

The main reason Amex interchange rates differ from other card networks is that American Express uses a closed system. As mentioned earlier, Amex is an issuing bank and a card network. Therefore, American Express doesn’t have to rely on third-party financial institutions to issue cards, as it offers cards directly to its clients.

This unique system makes Amex stand out and is popular among many merchants and customers. Besides, most Amex cardholders are well-to-do and come from a high-income bracket. Hence, they can afford to pay off their card balances. American Express cardholders also tend to make higher expenses across diverse industries, including hotels, flights, travel, food, entertainment, and shopping.

Here are four ways American Express interchange rates differ from other card networks.

1. Wholesale Discount Rates: Amex interchange rates, also known as discount rates, are calculated by adding a percentage of the total sale amount with a fixed transaction charge. Unlike other cards, Amex’s discount rates are not calculated based on the customer’s card type. Even though American Express issues different card types with unique rewards and features for cardholders, the discount rates incurred on every Amex card remain the same. You can talk to the Amex support team to understand the exact discount rates you will be charged based on your business type.
2. Total Transaction Amount: The Amex interchange rates are based on the transaction amount. The merchant has to bear higher interchange rates for payments of more excellent value.
3. Your Specific Industry: American Express has set unique interchange rates for different industries and occupations. For instance, it has different rates for industries like healthcare, restaurants, retail, service providers, B2B, and lodging. Sadly, Amex does not publicly disclose its interchange rates for different industries.

However, according to the reports from merchants across various industries, here are the average interchange rates American Express charges.

• Retail stores: a minimum of 3%
• Restaurants: 3.5%
• Supermarkets: 2.3%
• Healthcare solutions: 2.5% for clinical or office-based services and 3% or higher for out-of-office medical services
• Gas stations: 3.25%
• Other general services, such as wholesale markets: 2.9%

While American Express does not declare its interchange rates or announce any changes in such fees, always check your monthly statements to review the price breakups. These statements will help you understand the exact expenses for your Amex card transactions.

1. Other Charges: Amex interchange fees also include various other chargers, and every business owner accepting Amex cards should know this. Apart from interchange rates, you must pay a few other charges while accepting Amex cards. These include:

• Keyed fee: You will need to pay 0.3% additional charges if the customer is making keyed-in card payments, which means they do not have the physical card. In keyed-in transactions, the customer enters the card details manually rather than swiping or tapping the card.
• Network fee:15%
• International fee: This fee is levied when the customer’s card has been issued in a foreign land. When the cardholder’s Amex card is issued in another country, you should pay a 0.4% international fee.

How do Interchange Rates Impact Merchant Processing Fees?

Merchants pay a merchant processing fee to process the payments they receive successfully. In addition to interchange rates and payment processing fees, businesses accepting credit card payments must pay merchant services fees that cover all merchant account solutions, such as per-transaction, monthly, statement generation, and equipment lease charges.

Interchange fees will vary for different industry types and business categories. They depend on the unique four-digit MCC (merchant category code) number allocated to the retailer, which helps banks, card networks, and other financial institutions identify their merchant category while creating statements.

Also, since the interchange rates vary based on the total transaction amount made via Amex cards, it will impact the overall merchant processing charges you must pay. The higher the transaction amount, the costlier the Amex interchange rate.

Final Words

To sum up, you will always need to pay more to accept American Express cards since these are high-end cards designed especially for affluent individuals. We hope the article will help you understand how interchange rates are calculated and how the Amex system is unique from other card networks. We hope you can now make more informed decisions and learn everything about the interchange fees charged by American Express.