Just the other week my wife and I went to a highly recommended Italian restaurant in South Philadelphia. It was a typical family place right out of the Godfather – checkered table cloths, big portions, waiters with moustaches wearing white. But, I was assured, no guns taped behind toilets in the men’s room. We enjoyed the meal. But we won’t eat there again. Was it the food? The service? The ambiance? None of that. It was the payment.
The place didn’t accept credit cards. So I had to pay cash. What is this “cash” that people speak of? Who has heard of this thing? I didn’t have cash. I had cash in 1985. But not today. So I was forced into using an ATM that was conveniently located at the back…for a $4.00 fee. Why no credit cards? My guess is the owner is trying to save on fees (a note: the prices weren’t any lower so I guess those cost savings aren’t being passed down to his customers). Maybe he likes keeping a cash business off the books from the IRS; or he’s padding his pockets with the extra he makes from the ATM. You see these places all the time. Still. In 2016. Take photos. Like full service gas stations, bank branches and tube socks -- they are a quickly dying breed.
Which brings me to Costco and American Express.
Last week, the giant retailer made its final break with the giant credit card company. No longer would Costco only accept American Express. The store changed allegiances to partner with Visa and Citigroup instead. A few small business owners I know cheered the news. “Good for Costco,” one told me. “I hate the high fees Amex charges me. I should do the same.” I advised him not to.
Oh, I get it. American Express does charge merchants higher fees than Visa and MasterCard. Actually, a lot higher. A good summary of these charges is here – maybe the rates have changed slightly since, but not by much. And yes, Amex charges retailers a point or so higher than its competitors. Just ask any retailer. Loyalists will argue that American Express cardholders are more affluent and spend more money and are better customers. Or that American Express’ services are much better. These arguments also have merit. So there are certainly pros and cons to accepting the card.
But isn’t this debate irrelevant?
For starters, it’s 2016 and you can’t not accept credit cards. That guy who runs the nice little Italian place in South Philly may see out his days on the cash basis of accounting, but his business is going to get killed by the competitor down the street who makes food just as good and puts customer service way ahead of his measly 2% savings on merchant fees. Customers, especially the millions of Millennials who are as unfamiliar with cash as I am with long hair, are expecting to pay for everything with a credit card and in a very, very short time will soon be replacing those credit cards with Apple Pay, PayPal and other options right from their smartphone.
So what’s the lesson from the Costco/American Express tale? It’s this: as a small business owner it’s not up to you which credit card (or other payment) you accept. It’s up to your customers. The lesson is that you’re not Costco. As I see it, you can’t just not accept American Express.
My company accepts American Express. And Visa. And MasterCard. And Discover. Why? Because my customers want choices. And because when that wonderful and delicious moment comes when the customer is ready to pay, I want to make it as easy as possible … because I need every dollar I can get. Yeah, I’ll pay the fees. I just build them into my price.