AmEx Ramps Up Effort To Sign Small Merchants With Its OptBlue Program

American Express Co. is stepping up its campaign to add small merchants to its acceptance base with a program called OptBlue that gives partner merchant acquirers a greater role than they had with an older program called OnePoint.

AmEx started testing OptBlue late last year and revealed details about it at recent investor conferences. “We’ve been thinking how to evolve the program to get these acquirers to dramatically accelerate closing merchants to accept American Express, selling American Express,” AmEx vice chairman and president Ed Gilligan said Monday at an investor conference sponsored by New York City-based Keefe, Bruyette & Woods.

Under OnePoint, which began in 2007, partner acquirers signed merchants, provided servicing, and consolidated statements, but AmEx owned the merchant relationships and set the pricing. With OptBlue, the acquirer owns the relationship, services the account, takes the credit and chargeback risk, and sets pricing based on wholesale rates provided by AmEx. As with OnePoint, an OptBlue merchant receives a consolidated statement showing activity on all the card brands it accepts.

OptBlue is for merchants that do $1 million or less in annual AmEx volume. Above that threshold AmEx has the right to take over the relationship.

AmEx has six announced OptBlue partners: Heartland Payment Systems Inc., Global Payments Inc., Vantiv Inc., WorldPay, TransFirst LLC, and JetPay Corp. Two are live: JetPay and TransFirst.

For acquirers, OptBlue is a new service to offer as competition for merchants increases, Gilligan said. “We’ve evolved our thinking and, two, the market has changed,” he said. “A company like Square has changed the market so that these bigger acquirers now want to aggressively protect their turf, maybe, but [also] have more value they can offer their merchants.” He later added: “Market readiness for this deal was very high.”

Gilligan said that starting next year, AmEx expects the number of merchants signed annually under OptBlue will grow by about 50% for several years. “We’re very optimistic about that,” he said. He noted, however, that AmEx is not trying to achieve parity with the Visa-MasterCard merchant base, which numbers about 8 million in the U.S.

With acquirers free to set merchant pricing under OptBlue, AmEx’s average discount rate, typically the highest of the four major brands, could face downward pressure, but Gilligan expressed no worries. “We would expect a small decrease in our global discount rate, which would be more than offset by more volume coming on from spending from customers at these new merchants,” he said.

The worldwide discount rate was 2.48% in 2013’s fourth quarter, off slightly from 2.49% a year earlier, according to AmEx’s latest financials. The company doesn’t disclose U.S. rates.

Berwyn, Pa.-based JetPay's JetPay Payment Services subsidiary in November became the first processor to perform an OptBlue transaction, says unit chief executive Trent Voigt. That sale occurred at a Miami restaurant.

AmEx acceptance is now a standard part of JetPay’s new merchant contracts, which also include Visa, MasterCard, and Discover acceptance. While they have the option to refuse AmEx, the vast majority of JetPay’s new merchants is taking the brand because of favorable pricing, one-stop service, faster funds availability, and consolidated statements, according to Voigt. “Merchants absolutely love it,” he says, adding that JetPay is now working to add AmEx acceptance to existing merchants.

AmEx’s rates for acquirers are based on merchant category code and the size of an individual transaction, according to Voigt.

In 2006, Discover Financial Services launched a program to enlist bank card acquirers as sales channels for Discover acceptance. The program now has about 100 partner acquirers, and Discover credits it with bringing its merchant base to near parity with the Visa-MasterCard base.