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Credit Card Quandry

December 28, 2007

We have accepted Visa, Master Card, and Discover Card for years. Our discount rates have varied depending on the processing company, but they average slightly less than 2%. We pay $0.95 for debit cards, 1.25% for straight forward card present, and then the rates go up depending on whether the card is present, is a reward card, and whether it is a commercial card.

We do not accept American Express. They have one rate; in the past it was about 2.8% but they have just offered us a 2.55% rate. My reasoning for not accepting AmEx is my customers are affluent enough that they always have another card they can and will use. When they pull out their AmEx card to pay, we make a joke about them not being able to fly to Paris on this purchase. They always have another card to pay with. I can’t remember a time we lost a sale because we don’t take American Express.

One the other hand, all of my customers do have an AmEx card that they would prefer to use to get reward points. If we did accept AmEx, we feel that at least 50%, if not more, of our Visa, M/C, and Discover cards would be converted to AmEx. This would mean a significant increase in our processing fees.

At least, that was my train of thought until recently. Our new American Express representative presented an interesting argument. In their experience, the average AmEx purchase is higher than for other cards. They argue that once a client finds out you accept AmEx, they will add more to their purchase. They do this to get extra points or because they have a higher limit on their AmEx card.

My sales staff is skeptical of that argument. Most of our customers don’t know we don’t accept AmEx until the transaction is written up and we ask them how they are going to pay. Although the cards we do accept is posted on our entry door, it’s obvious many clients don’t see it because they still pull out their AmEx card to pay. We can’t remember the last customer who asked what cards we accept before they started making a buying decision.

Since I am on the CFR board, I asked the other board members what their experience has been. Out of the 12 people I asked, 4 responded that they accept AmEx. Three others responded that they didn’t for pretty much the same reasons I don’t. Two of the retailers that do accept the card gave me detailed reasons for accepting it. One had been accepting it for years and felt it was a service a high-end specialty store client expected. Accepting it made them more credible in their client’s mind. The other only started accepting it recently. But, they gave me the same reason I got from our AmEx rep; their AmEx tickets were much bigger (note: not just bigger but MUCH bigger) than tickets paid for with other cards.

I would like to hear from a larger pool of retailers before I make my final decision. First, do you accept credit cards? If you do, which cards? If you accept American Express, could you tell me what percentage of your credit card business is with them? Finally, why do you accept AmEx? I know it is risky to ask you to give out what you may consider a trade secret; so, please don’t give me dollar figures just percentages and most important, what your reasoning is for accepting the card.

Yours in confused retailing, Bruce