Interchange is the fee that businesses pay directly to credit card issuers for the service of processing their credit cards. Visa and Mastercard publish their rates for public knowledge, while American Express does not. After doing some digging, we found that the American Express 2007 Annual Report reveals that, on average, Amex’s discount rate was 2.56% (2007), 2.57% (2006) and 2.58% (2005).

Compare this to Visa’s interchange rate, which averages out to be 0.77% lower.

Keep in mind that the average Amex discount rates shown above are an average and include a much lower interchange rate that large companies can negotiate with Amex. A great example of this kind of partnership is Amex’s deal with Costco (as discussed in Paying with Plastic p. 169).  After accepting only Discover card for eight years, Costco signed an exclusivity agreement with Amex which industry experts say put Costco’s Amex interchange rate at about 1.11%.  In return, Costco customers had membership cards which doubled as American Express credit cards.

Compare that 1.11% to the fact that small businesses pay about 3.25-2.75% for Amex interchange.

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