Acquirers’ AmEx Fees Could Offset Losses to the T&E Giant

Bank card acquirers are increasingly tacking on fees to handle American Express Co. transactions at terminals they deploy for merchants, a tactic that may work in their favor as AmEx signs on more banks as issuers of the T&E company's products. That's among the major findings of the most recent research on acquirer pricing conducted by First Annapolis Consulting. In its latest survey of transaction pricing paid by retailers, the Linthicum, Md.-based firm received responses from acquirers and processors representing 54% of total bank card volume on credit and signature-based debit cards. Among other findings are that more and more acquirers are moving toward such tactics as sales or leasing of terminals rather than rentals. At the same time, acquirers offer so-called exception pricing when needed to ward off competition in an appreciable number of cases. The survey found that on average 10% of new merchants are offered exceptions to listed rates. “As price competition has increased, so too has acquirers' willingness to make exceptions in order to win or retain a valued merchant,” say Joel VanArsdale and Charles Marc Abbey, the authors of the firm's report on its survey. VanArsdale is a consultant and Abbey a partner at First Annapolis, which has conducted its acquirer-pricing survey since 1999. American Express sent shock waves through the bank card industry with its announcement in January that it had signed up MBNA Corp. as its first bank issuer in the U.S. market. The company has made it clear it expects to enlist other major bank issuers as well in a program that could shift significant transaction volumes from Visa and MasterCard products to AmEx cards. While bank card acquirers don't acquire AmEx transactions, they do handle them when they occur on terminals they drive, passing them on to AmEx's network. First Annapolis's latest survey finds that almost 60% of acquirers charge a fee ranging from a dime to 15 cents per transaction for this service. Also, the research shows that 92% of acquirers now levy an AmEx fee, up from 83% in 2002. This fee could prove a potent defensive measure for acquirers as AmEx courts more banks. “If American Express is successful in shifting market share from bank card brands, AmEx-related fees will be a primary means for acquirers to protect themselves from the reduction in acquirer revenue such a shift would trigger,” say the authors in their report. Banks have historically been prevented by Visa and MasterCard rules from issuing cards from either AmEx or Discover Financial Services Inc. These rules were struck down by a federal judge in 2001, a decision upheld on appeal last fall. The bank card companies have said they will appeal the case to the Supreme Court. Meanwhile, AmEx says it is actively recruiting banks of all sizes. It and MBNA have said, however, that they will hold off on marketing their program pending the disposition of the bank card companies' final appeal. Other important conclusions from the survey concern terminal deployment and chargebacks. While most acquirers at one time rented transaction terminals to their merchant clients, some 76% are now either selling the devices or leasing them through third parties, the survey found. Acquirers have come to favor selling/leasing because it helps meet heavy cash demands for sales commissions and frees up cash once required to finance terminal programs, the First Annapolis authors say. Fees for chargebacks, meanwhile, have rapidly achieved universality. Whereas 19% of respondents did not levy this fee as recently as 1999, now all do.