+1 including interest applied immediately to new purchases when those cardholders do not have a grace period on new purchases (which works out to an average of about 1.5% extra each month). Outside of credit enthusiast circles, keep in mind that most people with a card paying out 5% in some categories typically use the same card for 1% or similar purchases too.
Also all the fees - late fees, cash advance fees, "maintenance fees" for the subprime cards, and of course annual fees for being a card member for some cards.
@notmyrealname23 wrote:
@W261w261 wrote:Seems like I should know this, because the answer must be simple, but I don't, so.....
If merchants pay in the range of 1.5% - 3% to accept CC's in payment for their services, and many of the CC issuers are pushing out rewards that can be almost 5%, how is the shortfall being made up?
AMEX's chart for merchant transaction fees increases the percentage as the transaction size goes up. They also market to wealthy people (and their most exclusive Centurion card, aka "black card" is a 1x card for AMEX MR).
So there's part of how they "make it up" (the other points being made about interest, fees, etc. are also how that works). Not everyone is a MyFico poster with a spreadsheet detailing WHAT card is used for WHICH category, with adjustments for the rotating categories and special bonuses.
For OptBlue (the fairly recent American Express program that allows cards on their network to be processed through traditional merchant processors that have historically only been able to process Visa, MasterCard, and (later) Discover cards), the Retail Rate Grid has tiered pricing which differs depending on the MCC (an example would be 1.60% under $75, 1.95% from $75-1000, and 2.40% for $1000+ on card present transactions, while Interchange rates can easily be 3.45% for a business MasterCard with rewards no matter the price - but remember, "it's too expensive for merchants to accept Amex because high fees" LOL).
However, OptBlue has a relatively low annual cap on transactions to be eligible ($1 MM) and most established businesses that accept Amex have direct pricing negotiated. Only smaller businesses (and mostly newer ones that have opened in the past 5-6 years) that have Amex processing as part of their traditional merchant processing agreement are using OptBlue and receive discount rates that are tiered based upon the transaction amount. When a discount rate is negotiated directly with Amex, not only are the rates typically much lower but they are fixed percentages not impacted by transaction price just as Interchange rates for other card networks are. As of July 2018 (for some reason I actually remembered that I had that announcement letter nearby), they are tiered based on the type of card one is using, though (five tiers each for Consumer and Small Business, and 3 for Corporate - with typically a 0.2% spread between Tier 1 (lowest) Consumer cards and Tier 3 (highest) Corporate cards).
OptBlue is why Amex is now accepted at 99% of businesses in the US as including it is the default for a new business getting a merchant processing account, whereas previously businesses needed to directly negotiate with American Express for rates. But the overwheleming majority of Amex transactions are still processed directly with American Express, and not tiered based on transaction amount. There are also payment aggregators like PayPal, Square, etc. that further complicate matters as the merchant typically gets charged the same amount no matter what type of card is being used.