New American Express OptBlue Program May Reduce Your Processing Cost – Part One
This is one part of a two part series.
American Express recently came out with a new program called OptBlue. Under this program, the final processing rates and fees paid by the merchant are set by the Merchant Account Provider instead of American Express in a similar fashion to the way providers set the rates and fees for Visa, MasterCard, and Discover.
The program appears to be designed to specifically help small merchants and OptBlue may lower the American Express processing cost for many of these merchants across several industries. In fact, small businesses that do not currently accept American Express should revisit American Express acceptance under this new program.
I’m sure as with the other card companies, every merchant will want even lower rates than can be offered though the OptBlue program. However, I believe American Express has done a good job of designing a program that could be a Win/Win/Win – A win for the merchant, a win for the provider, and a win for American Express. I say “could be” because as straight-forward as American Express has tried to make the program, I’m sure there will be some Merchant Account Providers and/or their salespeople that will mislead merchants or not include all the facts in their communications with merchants just as some currently do for V/MC/D processing services.
In fact, I’ll guarantee there will be salespeople telling ecommerce merchants that they can reduce the merchant’s American Express rate from say 3.50% to 2.25% for example. Of course, the merchant may never see a single transaction at this new rate because of the merchant’s ticket size, plus in this example the salesperson conveniently left out some very important American Express and provider additional fees.
I also expect some providers will inform their existing merchants that they have a new program with American Express and they will be willing to include the merchant at some rate predetermined by the provider. Of course, the rate will not be as competitive as it should be.
Some important facts to know
There are limitations and important aspects that merchants need to understand about OptBlue. Below are some of the important things to know about the program. In part 2 of this series, I’ll go through more specific items plus provide a template so merchants can ask pertinent questions to salespeople and providers.
- The OptBlue program is available to most merchants who process less than $1,000,000 a year in American Express.
- Merchant Account Providers receive wholesale rates from American Express, in a similar fashion to the Visa, MasterCard, and Discover interchange rates. However, the American Express wholesale rates are more simplistic and mainly a function of the industry and sale amount versus the industry and plethora of different card types as is the case with the other card companies.
- Specific to the sale amount, the wholesale rate to the provider is basically broken down into 3 tiers based on the sale amount. For the average ecommerce merchant, a sale less than $150 is at the lowest rate, a sale of $150.01 and $3,000 will be at a higher rate, and a sale above $3,000 will be at the highest rate. For the average retail merchant, a sale less than $75 is at the lowest rate, $75.01-$1,000 will be a higher rate, and a sale above $1,000 will be at the higher rate. The rates and tiers vary by industry.
- American Express charges a network fee in addition to the main wholesale rates just as the other card companies have assessment and access fees in addition to the interchange rates.
- Additional fees may apply for international cards or card-not-present transactions, similar to Visa, MasterCard, and Discover.
- The final rate paid by the merchant is a combination of the provider’s mark-up, the wholesale rate, additional American Express fees, plus any other fees the provider may include. Just like with the other card companies, it’s the provider’s mark-ups and extra fees that are negotiable.
- The provider essentially owns the merchant relationship. Therefore, underwriting, chargebacks, general support, etc. will be handled by the Merchant Account Provider.
- The provider funds the American Express transactions and those transactions are stated on the same monthly statement you receive for your Visa and MasterCard transactions.
Your American Express processing cost is Negotiable with OptBlue
I want to stress this point. Don’t let a salesperson or provider tell you what your rate should be under the OptBlue program. I’ve already negotiated lower mark-ups for American Express than for the other card companies with merchants. American Express rates are negotiable under OptBlue and should be part of your overall processing negotiations.
Not all providers currently offer OptBlue
Again, this program is relatively new. Obviously, there is an investment to be made by any provider to incorporate this program. In addition, they have to prioritize this program against their many other needs. Therefore, I am not advocating changing providers just because your existing provider does not currently offer it. Instead, you may want to reach out and ask your current provider when they will have OptBlue. I expect that the vast majority of major providers will offer OptBlue in the coming months.
Summary
Again, I believe American Express has done a good job of designing a program that could be a Win/Win/Win. I’m sure American Express wants providers and their salespeople to present the OptBlue program with honesty and integrity. I also believe that many small retail and ecommerce merchants can see a cost reduction under OptBlue if they are priced competitively. Lastly, small merchants who do not currently accept American Express should revisit the benefits of American Express acceptance to their business under the OptBlue program.
In the next article, I’ll provide a template so merchants can ask pertinent questions to salespeople and providers when discussing the OptBlue program.
