A peek behind the curtain at American Express

I recently had a fascinating discussion with Gunther Bright, American Express’s executive vice president of merchant services.

For example, he told me Amex often sees higher card usage at merchants located near transit lines that accept contactless payments.

He wasn’t able to provide a breakdown of these payments (contactless versus traditional), but I suspect they’re much more likely to have been made with a tap than the average payment.

The higher card usage in and of itself is a notable trend. This is why I believe contactless payments will further the migration from cash to credit and debit cards.

See related:  Contactless cards: ‘Whoa, it’s the future!’

Contactless could be a game-changer for small spends

Our research found 65 percent of credit card holders paid for small purchases with cash in 2014, 22 percent used debit cards and 11 percent opted for a credit card. This summer, cash usage for low-value transactions was down to 43 percent. Debit had risen to 31 percent and credit had more than doubled, to 26 percent, in five years.

What’s more, among those who do not typically use credit cards, the most-cited explanation was that it’s quicker or easier to use a different payment method.

Contactless payments are the perfect solution. They’re fast, easy and secure. Plus, I would argue they’re even more significant for small-dollar transactions than larger ones.

Speeding through the subway turnstile is a delight. So is grabbing a quick coffee, muffin or bagel. And getting in and out of the pharmacy faster. I think contactless has broader applications, too, but I concede a point to the naysayers in this respect.

If you’re buying $200 worth of groceries, saving a few seconds by tapping your card or phone at the checkout counter isn’t terribly significant, particularly since you and the cashier are probably still fumbling with numerous bags and a receipt that’s taller than you are.

But for transit, fast food and other quick pickups, contactless can be a real game-changer. And this is where the cashless trend has the most potential to accelerate.

Amex’s data suggests that’s already happening, and New York City’s Metropolitan Transportation Authority was astounded at the 1 million contactless payments in the first 69 days of its pilot program. When the systemwide rollout occurs next year, credit card usage should expand throughout the city, not just at subway and bus stations.

See related:  Busted: 12 myths about contactless cards

Mind the gap

Bright and I also discussed American Express’s ongoing effort to close the merchant acceptance gap in the U.S. with Visa and Mastercard. He proclaimed that the three card networks (really four, including Discover, although he didn’t focus on them) will be accepted in roughly equal measures across the U.S. by the end of this year.

This would be a notable achievement for Amex, taking on the long-standing perception that Amex isn’t accepted at as many stores as its rivals (especially smaller businesses).

Bright explained that a continued focus on acquiring mid- to large-sized merchants, as well as programs such as Small Business Saturday (Amex’s Thanksgiving weekend salute to shopping locally) and OptBlue (an effort to bundle its network into merchants’ existing bank acquirer services) helped bring 1.6 million American merchants into the Amex fold last year.

A closely related fact is that Amex has also closed the merchant fee gap with Visa and Mastercard. Many store owners incorrectly believe that American Express always charges significantly higher processing fees than the other card networks, Bright explained.

He said that according to the latest Nilson Report data, Amex’s average cost of acceptance is 2.3 percent, roughly level with Visa and Mastercard, which come in around 2.26 percent combined. In recent years, Amex’s rate has come down and Visa and Mastercard’s rates have gone up. The end result, at present, is a negligible difference.

See related:  Small-business guide to credit card merchant fees

Strange bedfellows

All of this is good news for consumers. The more places you can use your cards, the more opportunities for convenience and rewards (as long as you pay your bills in full).

To that end, I also learned that Amex is participating in the launch of Secure Remote Commerce, an industrywide initiative that Visa, Mastercard, Discover and others, including several large merchants, have committed to adopting.

Consumers will be able to securely save their card info and speed through checkout at participating online retailers, all with a single login. This project aims to address the need for a more consistent online checkout experience, with enhanced security.

It will be fascinating to watch all of this unfold. As card companies continue to move toward providing ongoing value in lieu of a monster sign-up bonus, they will be competing even more on issues such as everyday rewards, convenience and acceptance.