AmEx is paying up to get businesses to accept its cards

American Express Co. wants more businesses to accept its cards. So it is paying them -- sometimes in amounts approaching a half-million dollars.

The company is offering sign-on bonuses to some businesses that don't take its cards in a bid to catch up to rivals Visa Inc. and Mastercard Inc. The payments range from under $10,000 to about $450,000.

Known more for its focus on upscale customers than its mass-market appeal, AmEx has long lagged behind Visa and Mastercard in the race for American businesses. In 2018, Visa and Mastercard were accepted in some 1.3 million more U.S. locations than AmEx, which had 10.3 million locations, according to the Nilson Report. Investors have pressed the company to catch up.


In 2016, AmEx said it would close the gap by the end of this year. Since then, annual dollar targets for its internal salespeople signing up new merchants have increased at a double-digit pace, according to current and former employees. In some cases, the salespeople are dangling hefty payments with few, if any, conditions and discounted swipe fees -- the toll merchants pay for each card payment -- to even tiny businesses.

AmEx Chief Executive Stephen Squeri has said the company is on track to meet its goal, but the payments show it hasn't been an easy sell. Sign-on bonuses with no strings attached are nearly unheard of in the credit-card business. Visa and Mastercard sometimes pay businesses to start accepting cards, but that money is meant to defray the cost of payment technology upgrades. Discover Financial Services also sometimes reimburses businesses.

Anré Williams, head of AmEx's global merchant and network services, said the company has offered bonuses to a small number of businesses, including some that had previously refused to accept AmEx. The sign-on incentives were intended to offset technical and marketing costs, he said.


AmEx said it has added more than three million business locations since 2017, mostly through the third-party payment processors that participate in its OptBlue program. The company said its internal salespeople gave sign-on bonuses to around 133 businesses since 2018.

AmEx "made a business decision to provide targeted sign-on incentives to strategic, priority holdout merchants, which comprise a tiny fraction of a percent of the merchants we acquire in a year," said Mr. Williams.

For nearly 20 years, Exxcel Gymnastics and Climbing didn't accept AmEx because of its higher swipe fees, said co-owner Tatiana Kamarskaya.

Last year, an AmEx representative visited the children's gym in Newton, Mass., with an offer that was too good to pass up: a $15,000 sign-on bonus, no minimum charge volume required, and a pledge to match Visa and Mastercard on fees.

"I said 'wow they really want our business'," said Ms. Kamarskaya.


Merchant acceptance fuels both sides of AmEx's card business. Unlike Visa and Mastercard, AmEx both issues its own cards and operates the network on which they run.

While the merchant gap has vexed AmEx executives for decades, the company had a fallback in the form of higher fees. The company for years distanced itself from rivals by courting well-heeled consumers. Businesses agreed to its higher swipe fees on the premise that AmEx cardholders would spend more.

Everything changed when big banks on the Visa and Mastercard networks began rolling out generous rewards cards with free flights and hotel stays. Some of AmEx's biggest spenders began using other cards.

At its 2016 investor day, AmEx pledged to close the gap by 2019. "Over time, a larger merchant base will translate into higher billings, improved perception of coverage and greater scale and relevance," said then-CEO Kenneth Chenault.


To meet the goal, AmEx's salespeople were given "parity lists" of businesses that weren't accepting AmEx cards, according to people familiar with the matter. Commissions were tied to purchase-volume targets for new businesses that salespeople mostly found on their own. Exceed that target, earn a bonus. Merchants on the parity list -- which included small businesses -- came with an additional payout of several thousand dollars, the people said.

The lists were unpopular. Top salespeople were hesitant to spend time courting small companies with low charge volume, the people said. In 2018, AmEx changed its salespeople's bonuses to tie them even closer to the parity lists. On a call to discuss the changes, a former vice president in the division told unhappy salespeople they were welcome to find new jobs, the people said. Bonuses were tweaked again earlier this year to prioritize the merchants on the lists.

Meanwhile, the company has sweetened the financial incentives for businesses.

Last year, AmEx cleared salespeople to pay bonuses of up to $10,000 without manager approval to businesses it expects to generate less than $3 million in annual AmEx charges. "We realize we are getting into the tougher holdouts and we want you to have every tool at your disposal to try to close these out," the former vice president wrote in an email to salespeople reviewed by The Wall Street Journal.

That figure was later bumped to $20,000, regardless of the merchant's size, according to an internal document reviewed by the Journal. A regional vice president could approve sign-on bonuses of up to $100,000, it added.


In some cases, AmEx has paid much more. A small number of big merchants have received payments of around $450,000 since last year, according to people familiar with the matter. It also has offered to waive the swipe fees for a small number of businesses for six months, according to an internal document titled "Parity Push Project."

Mr. Williams said AmEx considers a number of factors beyond merchant size, including proximity to businesses whose employees use AmEx corporate cards. "This could be a parking garage near a company's regional headquarters or a small business," he said.

For years, Ralph Carlo was a holdout. He repeatedly declined to take AmEx at his New Haven, Conn., heating-oil business because of its higher fees.

In spring 2018, an AmEx salesperson offered Mr. Carlo a $2,500 sign-on bonus. He still wasn't convinced. The salesperson returned with his boss, a $5,000 bonus and a pledge to lower the swipe fee. Mr. Carlo said the lower fee changed his mind; the bonus was upped to $7,500, anyway.

"It surprised me that he raised it because I wasn't asking for it," he said.

Mr. Carlo's Tracey Energy Services did around $43,000 in AmEx sales in the second half of 2018, he said. At that pace, it would take about six years for AmEx to recoup the $7,500 bonus.