Amex Makes Biggest Fee Cut In Two Decades

Good news for retailers doing business with American Express: The company is planning to cut its fee more than it has in two decades.

According to the Financial Times, Amex announced in New York last week that the global average of the fees it charges its merchants (known as its discount rate) would decline five or six basis points this year, to about 2.37 percent. If it reaches six points, it would be the biggest decline the company has offered since 1998.

Each basis point comes to around 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

With about 1.3 million fewer locations in the U.S. accepting American Express over Visa and MasterCard, this move is engineered by chief executive Stephen Squeri to entice merchants to accept his company’s card. In fact, Squeri has said he is willing to make “conscious trade-offs” to get more businesses to take Amex.

But smaller merchants have been especially reluctant to accept Amex, said Doug Kantor, partner at the law firm Steptoe & Johnson, who represents the Merchants Payments Coalition.

“Any reduction in the fees helps — but American Express, and all the major networks, have a long way to go,” he said.

John Hecht, consumer finance analyst at the investment bank Jefferies, agrees: “Retailers have become really aggressive at pushing back.”  He pointed out that even Amex’s corporate partners such as Delta, Hilton and other brands are demanding better terms from the company.

With that in mind, Squeri has suggested that more declines are coming. “Is five to six the new norm? Or is it two to three? That may go year to year, depending on the opportunities that present themselves,” he said.

Lowering its fees might also help the company stay out of legal trouble. Last year it was revealed that the U.S. Supreme Court agreed to determine whether American Express is in violation of U.S. antitrust law because it forbids merchants that accept cards other than theirs from steering consumers to other, lower fee-carrying, cards.