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What Is an American Express Card?
Let me explain what an American Express card is. Commonly called an 'Amex' card, it includes various electronic payment options like credit, charge, and prepaid cards. As a major player in financial services, American Express (AXP) issues these to individuals, small businesses, and corporations worldwide. You get unique advantages such as rewards points, cash back, and travel perks, and unlike Visa or Mastercard, Amex handles its own issuing and processing network.
Key Takeaways
- American Express is both a card issuer and a processing network, which distinguishes it from competitors like Visa and Mastercard.
- Amex cards, including charge, credit, and prepaid options, provide various benefits such as rewards points, but often come with high annual fees.
- Known for excellent customer service, American Express ranked first in J.D. Power's 2020 U.S. Credit Card Satisfaction Study.
- Merchant acceptance of Amex cards may be limited due to higher transaction fees compared to other card networks.
- Amex requires cardholders to have a good credit score of 670 or higher, ensuring high-quality lending.
How American Express Cards Work
You should know that American Express not only issues its own cards but also processes payments through its network—something few financial companies do. As a publicly traded company in financial services, it offers credit lending and network processing, competing broadly in the industry. Like traditional lenders, it issues credit products as charge cards and credit cards.
American Express has its own processing network competing with Mastercard (MA) and Visa (V). Its closest competitor is Discover Financial Services (DFS), which also offers credit lending and processing. With these capabilities, American Express earns revenue from interest on products and transaction fees.
Important Note
Just so you're aware, the term 'Black Card' refers to the American Express Centurion card, which is available by invitation only.
Fees Associated With American Express Cards
American Express generates much of its revenue from transaction processing. Many merchants accept these cards and pay the fees because of the customer benefits they provide.
In a transaction, the acquiring bank works with American Express, which acts as both processor and issuer. Merchant banks must connect with the Amex network for communications. Amex authenticates and approves the transaction itself.
Merchants pay a small fee to American Express for processing, part of the overall transaction costs. As both a processor and high-quality lender, American Express has built a strong reputation in financial services.
Different Types of American Express Cards Explained
As I mentioned, American Express offers credit cards and prepaid debit cards to retail and commercial customers. It's a leader in charge cards, which provide month-to-month credit that you must pay off fully each month.
Amex charge and credit cards use standard underwriting. The company targets borrowers with good to high credit quality—a score of at least 670—and avoids subprime lending.
These cards offer rewards points and travel perks, depending on the annual fee. Some provide cash back on purchases, though they're not the top options available. Amex also has branded prepaid debit cards for gifts or reloadable payments.
Annual fees vary: $95 for Blue Cash Preferred, $325 for Gold, and $695 for Platinum. The Green, Gold, and Platinum have no preset spending limits. Amex offers at least six cards with no annual fee. Customer service is highly rated, topping J.D. Power’s 2020 study.
American Express Partnerships and Co-Branded Card Options
American Express issues cards directly and through partners like Wells Fargo in the U.S. and Banco Santander in Mexico. Note that Wells Fargo paused new applications in April 2021, but existing cardholders are fine.
Amex partners with companies to boost applications, such as Delta Air Lines for miles and Hilton Hotels for rewards.
Advantages and Disadvantages of American Express Cards
Let me break down the pros and cons directly.
Pros
- Green, Gold, and Platinum Amex cards don’t have any predetermined spending limits.
- Amex is known for the high quality of its customer service, ranking number one in J.D. Power’s 2020 U.S. Credit Card Satisfaction Study.
- Amex cards offer a host of rewards, perks, and cash back on purchases.
- You must pay the balance on Amex charge cards in full each month, which prevents you from running up high interest charges.
Cons
- Due to higher transaction fees than other cards, some merchants won’t accept Amex cards.
- You can’t get an Amex card without at least a good (670 or higher) credit score.
- Annual fees for Amex cards can be high.
- You must pay the balance on Amex charge cards in full each month, so you can’t use them to 'borrow' money.
The Bottom Line
American Express cards are known for unique benefits like rewards points, travel perks, and high-quality customer service. They have higher transaction fees and sometimes substantial annual fees, making them a choice for those with good to high credit scores who can use the perks.
Amex stands out as one of the few companies that issues cards and processes networks, offering comprehensive services. Despite limited acceptance due to fees, partnerships with Delta and Hilton add value. Overall, these cards provide a strong feature set if you qualify.
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