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Jul 17, 2003

Should Subscription Sites Push Amex (vs. Mastercard & Visa) to Lower Declines & Raise Profits?

SUMMARY: Yes, in general American Express charges merchants more to process payments. However, you may find your sub accounts sold via Amex are so much more profitable in terms of lifetime value, that it's worth pushing the card in a big way on your order forms. Plus, did you know you can copywrite up to five lines to appear on each Amex bill where your charge appears, so consumers are less likely to dispute or cancel your service? Info here...
Should you be promoting American Express heavily as your preferred payment method for autorenew subs to your site?

"There is less of a account turnover at American Express for reoccurring billers. You don't have the same churn rate you have with Visa or Mastercard. You have Amex cardholders who have had the same account for 20 years," notes Paymentech's Michael Clark, who handles credit card auto-renew processing for some of the biggest online sub services in the world.

However, according to Clark, "In general American Express probably has about a 10% share of charges."

So, the big question for sub sites is: would you be more profitable if the percent of Amex numbers in your autorenew accounts was higher?

After all, as we've reported in the past, the average Visa or Mastercard account lifespan may be under a year. If you're counting on monthly or annual autorenews for your profits, a big part of your file goes bad too quickly for comfort.

We contacted two American Express execs to get some answers for you -- Kathleen Fiorello Director of New Industry Development, and Seana Pitt VP of Network Development. Here's what you need to know:

-> The Good News: Amex loves online recurring charge merchants

While some executives in the credit card industry are still a bit iffy on card-not-present transactions, not to mention sub sites, Amex appears to be opening up its arms for a big warm hug.

o Their fairly new site section "Automatic Billing" actively
promotes merchants who sell on an auto-renew basis, including
AOL, NetFlix, and

Funnily enough, though, print publishers vastly outweigh
their online counterparts on this promoted list. For
example, only WSJ's print edition is promoted.

Fiorello says Amex is working to change this, "We've been in
talks with, Zipcar, wine clubs..."

o Amex allows charges to run through even if you have an old
expiration date on the account. They do offer a service to
update the date, but if you haven't used it, the charge will
probably still go through.

This is one of the reasons why for active accounts, Amex is
apparently getting close to 98% approval ratings for
reoccurring charges. Fewer bounced charges mean more money
in your pocket.

o Amex's long-famed Achilles heel is the fact that their
various card databases don't talk to each other. When you
move from green to gold, your account number changes

They claim to be working on a solution so that merchants will
be able to get the card lists updated as customers switch
accounts within the Amex system. However, there's no set
launch date for the change.

In the meantime, they've put together a patchwork solution
that's frankly better than anything you'll ever get when Visa
or Mastercard card-holders switch issuers. "At every
touchpoint, we're talking to them about auto-bill payment,"
says Fiorello.

"We have a full [phone] script written. We'll prompt card
members on the phone when they activate new cards, 'I see
you've got XYZ subscription, we can send the merchant a
letter that this is your new card number so they can update
their fields.'"

o Merchants can use up to five lines of space on Amex
statements to describe their service clearly. Other cards
only allow one line.

Sub sites trying to convert trial users into paying buyers,
and sub sites that only bill on an annual basis, can probably
raise their conversion rates significantly to Amex customers
by copywriting these five lines carefully.

Your first line is 23 characters (including spaces) and the
next four lines are 40 characters-long each. Consider
including your phone number, your Web address, perhaps an
offer reminder (Pick up this month's member-only gift at, etc.

Pitt suggests that you also include the specific term of
service billed for.

"Months may align when a merchant may put two charges on a
statement for two separate months, such as June and July. If
you put separate months of billing on the statement, people
understand, 'Oh it wasn't the company duplicate-billing me.'"
Thus, you reduce complaints and chargebacks.

-> The bad news: Amex generally costs you more

While we couldn't find anyone to go on record about specific charges (so much in this industry is negotiable that nobody wants to be tied down in public), it's generally known that Amex charges merchants a premium for using its service.

If you are a very large sub site, you can probably cut a deal to lower this.

You can also lower your charges by sending transactions directly to Amex rather than through a third party processor who will take a cut before passing it on to them.

Pitt says, "Any merchant that will do over 200,000 authorization requests per year with us should come direct." In addition to lower rates, you may get "more seamless" service.

Amex has also added card-not-present auto billing abilities to its PC package Purchase Express that smaller merchants can use to process orders daily. Plus, they are upgrading their PayFlow network in the fall so that "little guys who may not have IT operations" can use it for reoccurring billing too. There are costs involved, so you'll need to look into each and decide for yourself.

-> Final suggestions

We suggest you start by creating a report that compares the following for your Amex versus Visa and MC subs:

- Charge bounce rate
- Chargebacks
- Average account lifetime
- Percent of accounts terminated due to cards going "bad"

Then run a spreadsheet to see if it's worth testing promoting Amex harder as an option. If it is, check in with an Amex rep to dicker a bit. You may be able to get a sweeter pot by asking for it.

And let us know how things work out. Thanks.

Related link:

"Credit Card Processing for Subscription Sites: Paymentech's Michael Clark Reveals Invaluable Tips"
See Also:

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