New American Express OptBlue Program May Reduce Your Processing Cost – Part Two
As I mentioned in The July 2014 article, American Express introduced a new program called OptBlue. This program should lower the American Express processing cost for thousands of ecommerce, retail, and other merchants in the US. The OptBlue program allows the Merchant Account Provider to set the rates and fees merchants pay in a similar fashion to the way Merchant Account Providers set the rates and fees for Visa, MasterCard, and Discover.
American Express has done a very good job of implementing a very straight forward pricing structure that is far less complicated than those implemented by Visa, MasterCard, and Discover. However, despite the program’s simplicity, I am sure some providers and their salespeople will mislead merchants or charge uncompetitive rates and fees. Therefore, the purpose of this article is to provide readers with key information to ensure they are not being misled or gouged by their provider.
Some Basics about the program
American Express provides wholesale pricing to Merchant Account Providers. The wholesale pricing differs by industry. For example, the retail wholesale rates are lower than the ecommerce wholesale rates. OptBlue is simple – There are only three wholesale rates for each industry type and the rates are based on the individual sale amount. American Express also charges the providers a Network Fee and an additional fee for Card-Not-Present transactions and international cards which the providers should pass-through to merchants without mark-up. However, some providers may mark up these fees as they do for the other card companies.
Obtaining Fair Rates and Fees
Step1. Ensure the wholesale rates and fees quoted are correct.
American Express has not published their wholesales rates so I will not state them below. However, to ensure that readers are not quoted inflated wholesale rates by providers or their salespeople please note the following:
Ecommerce Merchants
The three ecommerce wholesale rates are set for individual sales of $150 or less, $150.01 – $3,000, and sales above $3,000.
For a sale of $150 or less the combination of the wholesale rate, the network fee, and the Card-Not-Present fee should not exceed 2.15% + $0.10. The combination should not exceed 2.50% + $0.10 for a sale of $150.01 – $3,000. The combination should not exceed 2.95% + $0.10 for a sale larger than $3,000.
Most Retail Merchants
The three retail wholesale rates for most retail merchants are set for sales of $75 or less, $75.01 – $1,000, and sales above $1,000.
For a sale of $75 or less, the combination of the wholesale rate and the network fee should not exceed 1.75% + $0.10. The combination should not exceed 2.10% + $0.10 for a sale of $75.01 – $1,000. The combination should not exceed 2.55% + $0.10 for a sale larger than $1,000.
I did not include the Card-Not-Present rate for retail merchants because the majority of sales are generally swiped. However, retail merchants will pay a Card-Not-Present fee on transactions that are not swiped.
Important Point – When a provider or salesperson quotes American Express pricing, first have them list all three wholesale rates, the network fee, and the Card-Not-Present fee separately. If the combination of rates and fees mentioned above add up to more than the above mentioned figures, then the provider is inflating one or all of the rates and fees. Should this happen, I suggest you research other providers as it could be an indication that this provider has other pricing issues.
Step 2. Ensure the provider is pricing American Express fairly. Understand that many providers and their salespeople know that merchants have an ingrained belief that American Express costs more. Therefore, some providers and salespeople will try to take advantage of that belief. In fact, I have already seen it. A reader recently sent me a quote that had Visa and MasterCard pricing at 0.04% + 4 cents over interchange and pass-through fees. However, the American Express OptBlue pricing was set at 0.55% + 4 cents over American Express rates and fees. The provider marked up the American Express percentage almost 14 times more than Visa and MasterCard. Why? Because this provider knows that merchants don’t understand the OptBlue program. They also know that merchants in general have an ingrained belief that American Express comes at a higher cost.
Important Point – I’m sure that American Express did not introduce the OptBlue program so that providers could offer even lower V/MC rates by subsidizing them with higher American Express rates. Merchants must start looking at their American Express rates and fees. If the V/MC transaction fee is 5 cents then there is no reason why the American Express transaction fee should be higher than 5 cents. If the provider mark-up for V/MC is 0.04% + 4 cents than the mark-up for American Express should not be any higher than 0.04% + 4 cents. Don’t let the provider tell you the American Express rate is higher than V/MC because its volume is lower. Providers generally price Discover at the same mark-up as V/MC and its volume may very well be lower than the American Express volume at your business.
