Branded by the publicly-traded financial services company American Express (AXP), an American Express card, or more commonly known as “AmEx,” is one of the most famous electronic payment cards in the world. American Express issues and processes prepaid, charge, and credit cards. American Express cards are available to individuals, small businesses, and corporate consumers in the U.S., Canada, and other countries around the world. An American Express card can also offer a variety of perks, including rewards points, cash back, and travel perks. American Express also offers cards that are co-branded, such as those with Delta and Hilton. Unlike its top competitors, like Visa and MasterCard that have processing networks but do not issue their own cards, American Express is indeed one of the few companies around the globe that both issue cards and has a network to process card payments.
What are American Express Cards?
As stated above, American Express is a publicly traded company in the financial services industry. American Express cards are issued by American Express and processed on the American Express network. Unlike Visa and MasterCard, American Express is one of the few financial service companies in the market that can both issue and process electronic payment cards. In addition to that, American Express offers both credit lending and network processing services which gives it a wide range of competitors in the market. It has the capability to issue credit products just like traditional lenders, which the american express provides in the form of charge cards and credit cards.
Furthermore, just its competitors like MasterCard and Visa, American Express has its own processing network. In the United States, its most comparable competitor is Discover Financial Services which is also a publicly traded financial service company which offers just like what American Express offers: credit lending and a processing service network. With the capabilities of American Express in multi-product, they can generate revenue from both interest earning products as well as network processing transaction services.
Special Considerations in American Express
As stated above, one of the ways that American Express can generate its revenue is through processing transactions. Transaction processing contributes a significant chunk of profit to the company. There are many stores and merchants around the globe that accept American Express cards. Furthemore, most major online retailers also accept American Express. With that, because of the advantages that come with offering American Express as a payment option to customers, many business owners and sellers are willing to pay the transactional fees associated with processing payment through the AmEx cards.
During an American Express transaction, the merchant serves as both the processor and issuing bank in the transaction process as the merchant acquiring bank communicates with American Express. It is important that the merchant acquiring banks must work with the American Express processing network in order to be able to transmit communications in American Express transactions. It must be noted that the American Express is the only issuer which authenticates and approves the transaction.
As part of the comprehensive fees involved with a single transaction, the merchants pay a small fee to American Express for its processing network services. With that, American Express has indeed built a strong reputation in the financial services industry as both a processor and high-quality lender.
Who is involved when you transact your credit card?
When you utilize a credit card for payments, there are definitely many steps between your card going through the reader and the charge showing up on your statement. Being instantaneous, you are unconscious that these steps involve multiple parties which includes you. In a typical transaction, here are the participants involved:
- The cardholder – This is the owner of the card and also the person responsible for making charges on the credit card and paying the bill.
- The issuer – This is the bank that supplies the card to the cardholder. The issuer is responsible for maintaining the card account.
- The merchant – The store, service provider or other person or business who gets paid with a credit card.
- The merchant’s bank – This is also known as the acquirer. This bank supplies the merchant with the equipment required in order to accept cards. The payment for card transactions is deposited in the merchant’s account there.
- The payment network- This the intermediary that is responsible for processing the transaction. The payment network verifies with the issuer of the card that the card is valid, then assures that the charge is attributed to the proper cardholder and that payment makes it to the merchant’s bank.
Obviously, in reality, merchants are not capable of working directly with every single bank that issues credit cards. This is impossible, especially that there are quite a number of different issuers in the market. Instead, in places like Canada, merchants work with the three payment networks — Visa, Mastercard, and American Express. So for example, regardless of the issuer, in order to accept Visa cards, a store just needs a contract with Visa, and Visa will be the one to handle things between the store and the issuing banks.
The Key Differences Between the three Networks available in Canada
During the early years in the financial industry, the Bank of America distributed the first mass-marketed consumer credit card. This somehow has established the foundation for what would become the Visa credit card network. Since that time, more major credit card networks and several issuers have ventured the credit card market, making a competition-rich environment for growing credit-hungry consumers.
But while Visa may have been first in the credit card world, its competitors surely did not waste any time grabbing their own shares of the market. In particular, with MasterCard, vying directly with Visa for the bulk of credit card purchase volume. With that, sheer size is not all that differentiates the three major networks,but they also differ in a few important factors:
- Acceptance of Merchants: One of the most important differences between these networks in Canada is the number of merchants that permit transactions processed by a particular network. On a global scale, when talking about merchant acceptance, American Express is slightly behind its competitors, for there are fewer number of merchants who accept Amex cards. In most other parts of the world, usual merchants are more likely to accept Visa and Mastercard than American Express. In Canada, however, there are a lot of merchants that accept American Express, as many as those with its competitors. It must be noted also that in many areas of the world the majority of major retailers accept all credit card networks. However, there are exceptions such as in cases where a merchant has a specific contract with a particular issue to only accept Visa cards.
- Merchant Cost: Maybe one of the biggest differences between these three networks for merchants and retailers is how much each costs to support. The merchant is charged a minimum fee by the credit card network in order to process the credit card transaction each time a customer utilizes a credit card to make a purchase. The primary factor in whether a merchant accepts a certain card is the size of the processing fee that varies by network. For example, American Express charges 2.0% to 2.5%, while Mastercard generally charges between 2.1% and 2.7% per transaction. Visa, on the other hand, is almost on par with American Express, charging approximately 1.43% to 2.4%.
- Issuing Banks or Types of Cards: Another key difference between the three networks is the actual cards you can obtain, which is significantly dependent upon the network’s banking partners. American Express is both an issuer and network, meaning it generally does not partner with outside banks in order to issue credit cards. In contrast, generally, Visa and Mastercard do not issue their own cards, meaning most cards sporting a Visa or Mastercard logo are issued by an outside bank. So, if you want a specific credit card for its rewards or other perks, you are going to get stuck with whatever network the card’s issuer partners with for that card.
- Fringe Benefits: The last of the significant differences between these credit card networks is the package of fringe benefits given to cardholders by the network. There are common benefits between these credit card networks such as rental car insurance, however, there are some benefits that can be exclusive to one or two credit card networks. So you can definitely ask your credit card network or provider for these exclusive benefits that separate them from their competitors.
Advantages of AmEx cards
Unlike the two major credit cards, American Express really shines. Especially if you qualify for more premium membership, American Express credit cards offer the best benefits of the 3 credit card companies. As a credit card issuer, specifically in dining and airlines, AmEx can negotiate deals with merchants and partner them for amazing benefits. This is the reason why many people, including the socialites, prefer American Express.
As a brand, it is definitely not a doubt that American Express is identified with luxury. As observed by many people, its classic lineup of cards are used for the higher end of the market, and the offers and features inculcated into their various cards are of wide-range and are very useful. Some of these benefits include: No predetermined credit limit; generous points or miles awards for qualifying purchases; airline ticket credits; reimbursement for safe traveler programs such Global Entry, TSA PRE✓ enrollment fees; Uber credits; and high-end airport lounge access.
American Express cardholders or their members, as the issuer calls them, are also looped into Membership Rewards®, which in this modern era is a growing program full of all manner of goods and services. Over the years, the company has successfully built strong partnerships with a number of hotel chains, major stores, and airlines, increasing the scope of the program even more for their members. Furthermore, according to the assessment of the customer service American Express, the company is said to be responsive, helpful, and effective, trademarking their quality of service to the general public. This can really come beneficial when card-related problems arise in a foreign land, since a number of American Express members are usually travelers.
- Consumer protection of AMEX card
When it comes to consumer protection measures, American Express fares definitely better compared to its competitors such as Visa or Mastercard. American Express offers a 90-day accident and theft guarantee and 90-day return guarantee. Moreover, AmEx also refunds your purchase during this time, even if the retailer does not refund it. In the US and most other countries, American Express also offers extended warranty on purchases.
- Overseas usage of American Express cards
As stated, most members of AmEx are habitual travelers. So one of the advantages of AmEx cards is that it can be utilized in more than 140 countries around the globe. Some people may argue that AmEx has a lower number of countries accepting their cards in contrast to Visa and Mastercard’s 200+ countries. However, it must be noted that American Express offers the lowest overseas card fee transactions. So if AmEx cards are accepted in your destination, then it is very wise for you to use an American Express-issued card as your travel card.
There are definitely little hidden overseas card fees that can range from 2.5% to 3.3% on top of the purchase price when you make foreign currency transactions. Regarding this matter, there is really no difference between Visa and Mastercard, their fees only vary from the bank that issued them. However, for American Express issued cards, they charge a flat overseas card fee of 2.5% which is definitely one of the lowest in the market. It is important to note that this is only the case for American Express issued cards. There are other bank-issued American Express cards that can charge much more than 2.5%.
In addition to that, American Express is known for its 24-hour international concierge Global Assist. So when you lose your credit card or encounter any technical difficulties while travelling, they will help you with travel arrangements, referrals e.g. to a doctor or lawyer, and even quick emergency credit card replacement.
Disadvantages of American Express
Just like everything else in this world, there is no such thing as a perfect credit card. So even if American Express cards have a lot to offer, there are definitely some disadvantages that come with it too.
- Somewhat elitist – Even though today, American Express has already improved its card selection for not-high-worth individuals and businesses, most of its selection of products remains still limited to those that belong to the higher social strata.
- High annual fees – It must be noted that many American Express cards for people of modest means carry no annual fee, however the company’s more established products cost a high annual fee.
- More limited acceptance – As stated above, some merchants do not really want to bear the additional cost of accepting the AmEx cards, especially that American Express has a slightly well-heeled clientele, and this consumer base is very attractive to merchants. This is a primary reason why the issuer charges somewhat higher fees to businesses to process its payments.
- Charge cards – It must be noted that the core American Express lineup frequently is composed of charge cards. These are credit cards that require the owner to pay the balance in full every month. For most people, this is a particularly demanding requirement, especially for those who must roll over at least part of their monthly balance on a regular basis.
Types of American Express Cards
There are definitely different types of American Express cards. The company usually offers prepaid debit cards and credit cards to a variety of both retail and commercial customers. Furthermore, American Express is a top provider in the market of charge cards which offer month to month credit with card balances that must be paid off each month, as what has been stated above.
It must be noted that American Express charge and credit cards follow standard underwriting procedures. Generally, the company is not a subprime lender so it seeks fair to high credit quality borrowers. As stated above, American Express credit and charge cards come with a number of different benefits in the form of rewards points and travel perks. Furthermore, their cards can offer cash back on certain purchases, though it must be remembered that they are not yet among the best cash back cards currently available in the market. American Express also offers numerous branded prepaid debit cards which can be utilized as gift cards or special purpose reloadable payment cards.
American Express issues many of its cards directly to consumers, but it also has partnerships with other financial institutions. American Express has partnerships with other companies to encourage consumers to apply for its credit cards. An example of this is American Express and Delta Airlines, in which consumers are allowed to earn frequent flier miles redeemable on Delta, or American Express and Hilton Hotels. Today, American Express is by far one of the most versatile credit card providers available in the market. In addition to that, the company also offers a variety of cards fit for the needs of different types of consumers, including basic no-annual cash back cards that are great for first-time credit holders and luxurious travel charge cards for those who do spend a lot.
- American Express Card Levels
It must be noted that American Express does not have a formal tiered system except for its Aeroplan and Air Miles cards, unlike its competitors such as Visa and Mastercard. However, if you are looking for steps in order to better categorize and understand the different American Express cards, you can generally read along this article.
Generally, there are four different American Express card levels based on annual fees and requirements. As a general rule, just like in all credit cards, the higher the level of the card, the better the benefits and perks.
- Entry Level American Express Cards
- Credit Card Annual Fee: $0 to $149
- Credit score requirement: Fair to Good, (670 to 739)
- Minimum income requirement: none
- Mid-Tier American Express Cards
- Credit Card Annual Fee: $150 to $500
- Credit score requirement: Fair to Good, (670 to 739)
- Minimum income requirement: none
- Platinum American Express Cards
- Credit Card Annual Fee: Above $699
- Credit score requirement: Excellent, (740 to 900)
- Minimum income requirement: none
- American Express Centurion Card
The highest level American Express card is the Amex Centurion, also known as AmEx Black. This card is very elite and is invite-only membership. Furthermore, AmEx does not officially publish its information.
- Two Types of Cards
As stated above, the American Express offers two types of cards which are charge cards and credit cards. Those who are interested can apply for these AmEx cards. With this matter, no option is actually better than the other, however it is important to note that both of these cards work very differently.
Just like a credit card, charge cards allow you to make your purchases and receive a bill at the end of the month. However, with a charge card, you are required to pay back the full amount of money used on the due date, which is usually every month. If you fail to pay your dues in the exact date, you will have a huge interest charge of 30% of the balance and the possible loss of the card. In addition to that, charge cards have no spending limit but they may have higher annual fees compared to credit cards.
Credit cards, on the other hand, permit you to make your purchase on credit up to a certain amount, which is your credit limit. Credit cardholders will be charged at the end of the month, but unlike charge cards, you do not have to pay back the full amount in order to be able to continue using the card. Even if paying back the entire amount on a monthly due date can cause interest charges, credit cards offer flexibility, which most people find helpful. Lastly, credit cards also have lower annual fees compared to charged cards.
- American Express Credit Cards According To Card Level
For Canadians, American Express currently offers twenty different card options. However, to make it easier for you and to better compare the differences of American Express levels, here are the three of the most popular cards of American Express in Canada. These cards are the American Express CobaltTM Card, The American Express® Gold Rewards Card, and The Platinum Card®.
- American Express CobaltTM Card
- Credit score required: Fair to Good
- Minimum personal income required: Not Applicable
- Annual fees: $120
The entry level credit card of American Express is the CobaltTM Card. It has a relatively low monthly fee, which is about $10 per month or $120 per year. Moreover, any additional cards are free. One of the benefits this card offers to new cardholders is that they can earn up to 30000 bonus points in the first year if they charge a minimum of $500 to their card during each billing period.
Furthemore, for every dollar they spend, card holders will also earn American Express Membership Rewards points which is:
- 5 points for every $1 spent on recognized food and drinks, including groceries and food deliveries;
- 2 points for every $1 spent on travel and transit expenses; and
- 1 point for every $1 spent on everything else.
Travel rewards, various merchandise, or toward card statements can then be redeemed using the accumulated points above. You can also opt to transfer your membership points to other loyalty programs that co-brand with American Express. Lastly, supplementary benefits that are being offered by the American Express CobaltTM Card include perks with properties of The Hotel Collection, entertainment access via American Express Invites, and an inclusive insurance plan that covers both travel and shopping protection.
- The American Express® Gold Rewards Card
- Credit score required: Good to Excellent
- Minimum personal income required: Not Applicable
- Annual fees: $150
According to financial experts, the American Express® Gold Rewards Card would be considered a mid-tier card compared to the other American Express cards. It is one of AmEx’s charge cards that comes with an annual fee of $150. When new cardholders of this American Express card charge $1,500 to their card within the first three months, they can earn a welcome bonus of 25000 Membership Rewards. Furthermore, recognized travel-related purchases and purchases at stand-alone gas stations, grocery stores, and drugstores will let you earn 2 points for every $1 spent. All other purchases outside these parameters will let you earn 1 membership reward for every $1 spent. Just like the CobaltTM card, your membership reward points can be redeemed against your credit card statement, transferred to different travel programs such as Aeroplan, or you can utilize these membership reward points in order to book flights with the Fixed Points Travel Program. Lastly, additional perks with this AmEx card include travel perks from The Hotel Collection, privileges with Hertz Car Rentals and full travel insurance.
- The Platinum Card®
- Credit score required: Good-Excellent
- Min personal income required: N/A
- Annual fees: $699
One of the highest levels of AmEx cards aside from the Centurion card is the Platinum Card®. It is a charge card and comes with a $699 annual fee. It also comes with a $175 fee per year for additional cards. When new card holders spend $2,000 within the first three months of Card membership, they will receive a 25000 welcome membership rewards points as a bonus. In addition to that, cardholders will also receive a $200 annual travel credit which can be utilized for a single travel booking worth $200+ made through American Express Travel Online or through the Platinum Card Travel Service. Furthermore, card holders can also have additional reward points through:
- Eligible dining experiences charged to the card will earn 3 points for every $1 spent;
- Travel purchases earn 2 points for every $1 spent; and
- All other purchases earn 1 point for every dollar spent.
Lastly, additional benefits of this card include unlimited airport lounge access for yourself and for another companion, automatic gold status in a number of different hotel programs, Amex entertainment benefits, benefits in Toronto Pearson Airport, entry to Amex’s International Airline Program, and a full package of travel insurance.
- Highest Level American Express Card: Centurion Card
The Centurion card also known as the black card is the highest level American Express card. However, as stated above, it is only available by invitation from American Express. This means that you can not just apply for it as you would like for their other cards. According to experts, American Express seems to invite and choose from people who already have an existing American Express card particularly those who have the Platinum card. Generally, cardholders generally need to charge a huge amount to their cards in order to be invited. Furthermore, those invited to become Centurion cardholders are required to pay a very significant annual fee which is estimated to be at $2,500, on top of a one-time initiation fee of approximately $7,500. According to reports, Centurion card holders have access to a personal travel concierge; flight upgrades; companion tickets; free hotel nights; highest-level airport lounge access; and are exempt from foreign transaction fees, among several other rumored benefits.
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