American Express Wins A Battle That May Keep Card Offers More Attractive

American Express has been fighting an antitrust suit the federal government filed roughly 6 years ago.  The fight might not be over, but things look a lot better after a ruling from a federal appeals court that threw out a lower court’s judgement against AMEX:

The decision reversed a lower court ruling that determined AmEx violated antitrust rules by prohibiting merchants who accept its cards from encouraging use of other cheaper cards from Visa Inc. and MasterCard Inc.

The crux of the argument was that American Express shouldn’t be able to prevent merchants (your local grocery store, for example) from offering you a cheaper price if you paid with Visa or MasterCard.

This is clearly an example of government intervention that doesn’t actually help cardholders.  Every retailer has a choice on whether they want to accept American Express, or any other form of payment for that matter.  American Express is saying that if a retailer wants to accept American Express as a payment option, it needs to be treated like all the other credit cards the merchant accepts.

How much the business pays American Express isn’t really relevant to any harm they might be caused.  As a small business owner, I have truckloads of data that show American Express customers spend more money.  We like customers that spend more money, so we’re happy to pay a slightly higher percentage of a larger transaction.  Maybe that doesn’t work for everyone, but it’s been a winning strategy for us for nearly two decades.

This Isn’t Necessarily Bad For Cardholders, Though It May Be Bad For Merchants

Those higher merchant fees are what helps pay for the lucrative bonuses consumers get from the credit cards they carry in their wallet.  I’m certainly a big fan of bonus points/miles, so I don’t want an impediment to companies that want to offer them.

There’s a hollow argument that consumers pay more money to retailers and merchants because of the American Express fees.  Smart businesses will price their product as high as the customer will reasonably pay.  If customers are paying a price now and merchants provide a discount for those paying with Visa or MasterCard, it won’t be long before some merchants just raise their price so that the discounted price matches the old higher price customers paid before the discount.

What’s left unsaid here is that there are plenty of credit cards other than the AMEX family that charger higher merchant fees.  Most of the premium credit cards charge higher fees to merchants, including many of the Visa and MasterCard products in your wallet.

The government still has the opportunity to appeal here.  I’ll be hoping the battle ends here.  Consumers should hope the same thing as well.

The post American Express Wins An Important Battle For Their Business Model was published first on Pizza in Motion