Can my small business afford to stop accepting AmEx?
Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
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Dear Your Business Credit,
Do American Express cardholders typically have a Visa or MasterCard
card, too? I am going to stop taking AmEx cards
because of the high cost, but want to be sure my customers have an alternative. Use
of debit cards has spiked and the costs are very reasonable. -- William
Customers' payment preferences are evolving constantly, so
it's important to periodically examine whether the options you're offering are the
right ones. It helps to look at the numbers and weigh the costs.
I could not locate any research on whether American Express
cardholders typically hold a Visa or MasterCard, too. But the
average American cardholder held 3.7 credit cards in 2009, according to a paper
by the Federal Reserve Bank of Boston. Another Fed study found that nearly 33 percent of American families held four or more cards in
2010. That means it's likely that many of your customers will have options
other than AmEx, but it's
important to pay attention to their habits at your particular business over
several months. If a very large percentage use AmEx, you may
want to proceed slowly on dropping the card.
Think also about whether your customers are big spenders or average
Joes. In general, far fewer Americans have AmEx cards than
Visa or MasterCard, but each AmEx customer spends
a lot more on that card.
It is possible that, even if you offer other options, AmEx
loyalists will grumble. American Express scores high on customer
satisfaction -- it's topped the J.D. Power and Associates ratings for seven years in a row.
That said, you did mention that many consumers are now using debit
cards, which may be just the alternative your customers need. Whether they're
cheaper for you depends on the value of your typical transaction, and on how
much banks charge you for debit card transactions. Banks have been charging merchants
21 cents per transaction. But a federal court in late July overturned the rule
that allowed that fee, suggesting it should be capped at 12 cents per
transaction. In comparison, credit card swipe fees average 2 percent, according
to the National Retail Federation.
As you note, debit card use is on the rise.
It increased 39 percent in the five years leading up to 2012, while
use of online payment options rose by 30 percent, according to 2012 research by American Express
. At the same time, the use of credit cards has
declined a bit. The Federal
Reserve found in its 2010 research that 68 percent of
families had credit cards, down from 72.9 percent in 2007.
Often, consumers' use of debit cards depends on the type of
business they are patronizing, so looking at payment trends in your field may
help you predict if your customers will switch over to them. The 2010 ComScore Online Credit Card Report found that more
consumers prefer buying groceries and making drugstore purchases with debit
cards than credit cards. However, for business expenses, travel, gas and
automotive, merchandise and entertainment, more consumers liked to use credit
cards. If you're in an industry such as travel, where customers feel better about
making purchases on a credit card, it may put you at a disadvantage to weed out
any major credit card.
The age of your customers may also make a difference in how
they react to the absence of a particular credit card. Research by credit score provider FICO found that Millennials
are more likely than other generations to be credit-cardless -- so if you have a
lot of young customers, they may not care much if you have dropped any one card.
In contrast, the smallest percentage of cardless customers
is among people over 60. A 2011
study by the Federal Reserve
Bank of Boston looked at 2008 data and concluded that credit card usage was
highest for older, wealthier and more educated consumers.
American Express is a market leader in winning wealthy customers,
so if that's your target market, you may want to talk with some of your best customers
about what they would do if you drop AmEx. It all
comes down to keeping your customers happy -- and, while research can guide
you, they know best what payment methods they prefer.
See related: Which credit cards should your small business accept?, Should we charge our customers to use credit cards?, Swipe fee battle renewed after court ruling
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Published: August 26, 2013