Illinois tollway considers dumping AMEX

Discussion in 'American Express | Membership Rewards' started by Gargoyle, Sep 27, 2011.  |  Print Topic

  1. Gargoyle
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    I just rec'd an e-mail from the Illinois Tollway (because I pay my iPass with AMEX) asking me to take a survey. All the questions were clearly designed to judge the effect on their bottom line and customer relations if they dump AMEX.

    IMHO AMEX really shoots itself in the foot by having higher merchant rates than do the other cards- lots of merchants resist acceptance for that reason. They need to look at where they are wasting money, cut that, and cut the merchant rates.

    For example, years ago, when Tiger Woods first appeared on the scene, they jumped at the chance to throw $10 million at him for endorsements. I never saw a single ad with him. I look at that $10 mil this way: if they rec'v about a 3% merchant rate on transactions, and if they have a 10% profit margin, that means their profit is .03% on every transaction, or $300 on every $10,000 of transactions. To make $10M in profit, they have to process about $330 million in sales. Do they really think, even in his heyday, Tiger Woods could possibly cause people to transfer $330,000,000 in purchase from other card to the AMEX? If, instead, they had reduced their merchant fee by even .01% they would have generated more sales and more profit.
     
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  2. al613
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    al613 Silver Member

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    Why do you think their profit is 10%. What if it's 90%? They don't have another bank in the middle like Visa.
     
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  3. Gargoyle
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    If so, it changes the equation and they can afford to blow away customers and market share.
    10% is just a WAG, perhaps someone here knows what it really is.
     
  4. mattsteg
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    mattsteg Gold Member

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    Their whole business model is built on obtaining a significant revue from fees, upsells, and other ancillary revenues. The command those fees by having in general higher-spending cardholders. They invest in marketing and generous reward programs to target high-income (and high-spending) users. Reducing merchant fees would be a pretty significant change in business model.
     
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  5. al613
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    al613 Silver Member

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    If you start lowering the fees you can loose more money then by loosing some customers. Amex and Visa are just different business models. Also, see what happened with Diners Club when they became MC and lowered the fees. Yes, before you could only use them at few places in town and now everywhere, but do they make money?
     
  6. Gargoyle
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    Makes sense; the only problem I run into is that so many places refuse to accept it, that reduces my AMEX spend by 10% to 15% per year.
     
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  7. NYBanker
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    This was the right call for Diners. They had too small of a network here and were simply shriveling away without non-travel/dining merchants.

    Too bad Citi isn't taking new applications right now in the US.
     
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  8. NYBanker
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    Depends a lot on where you are. Where I live, Amex has a penetration of well over 95% of card accepting merchants.
     
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  9. NYBanker
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    When I was involved in a retail business, we saw Amex had easily at 20% higher average sale than visa/mc...but we started asking Amex users if they also had a visa or mc, and they nearly all said yes. I can't say I know anyone who is Amex-only in their wallet.
     
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  10. Bluto
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    Bluto Silver Member

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    Yes, everyone has Visa/MC in their wallet, too, but many prefer to use their Amex because the rewards are better or because their corporate card is an Amex. So, yes, they will be able to pay with a Visa when the merchant says "oh we don't take Amex, do you have another form of payment?" but that customer will remember next time and frequent that merchant less or just stop altogether. I know there have been a few times where we've tried to figure out where to go to dinner and the restaurants that annoyingly don't take Amex seem to always fall to the bottom of the candidate list. It's really a short-sighted strategy for a merchant not to take Amex, unless they are such a strongly positioned retailer with a must-have product that their sales won't be affected even if they demanded payment in gold coins.
     
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  11. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    My corporate card is an Amex and the policy is to use the corporate card unless the merchant doesn't take it.So a restaurant that doesn't take Amex actually is at the top of the candidate list, all other things being equal. In other words, if I have the choice between two equally attractive restaurants (cost and food and location wise), and I happen to be expensing the meal (which is very rare for me, as I rarely travel for business), then I tend to prefer the no-Amex restaurant since I then can legitimately pay with my own card and earn a few miles.
     
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  12. Sweet Willie
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    Sweet Willie Gold Member

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    agreed, 'back in the day' when traveling I would have run into a number of merchants that didn't accept Amex, now it is few & far between from my experience.
     
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  13. Gargoyle
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    I still run into it several times a month.
    Also, I have some suppliers and service companies that only take visa/discover, those tend to be larger ticket spends.
     

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