How Can American Express Afford to Pay the Most Generous Credit Card Rewards?
American Express has some of the best rewards programs out there, from Membership Awards to Starwoods Points, to simple cash back. To demonstrate why, let’s analyze two transactions at Joe’s Coffee Shop, one using your American Express card, and one using your MasterCard/Visa from one of the big issuers (Bank of America, Chase, Citibank, Capital One, Wachovia). • Scenario 1: You pay using Amex • Joe’s pays a ~2.4% transaction fee to Amex, on average, to process the transaction. American Express owns the network, the card company, and the sales network to sign up new shops, so they keep the entire transaction fee. • Scenario 2: You pay using your local bank’s MasterCard/Visa • Joe’s pays a ~1.4% fee, on average, to process the transaction • This fee is split 3 ways between: (i) the sales organization who signs Joe’s Coffee to use the MasterCard/Visa network, (ii) the MasterCard/Visa Network, and (iii) the bank who issued you the credit card. Not only does American Express charge a highe
