Citi/Amex: More Bad News for Merchants? For MasterCard?

With American Express announcing its second US bank partner deal with Citibank yesterday, the implications for card-accepting merchants of any shift in spending away from Visa and MasterCard branded cards to Amex cards are coming into focus.

One industry analyst estimates that for every $100 in cardholder purchase activity that moves to Amex-branded cards, merchants will pay $0.50 in higher card acceptance fees due to the higher interchange/merchant discount fees that American Express charges.

Of course, it's the financial participation in that higher interchange fee income that's the primary (only?) motivator for MBNA and Citi to do these alliance deals with Amex. In combination, Citi and MBNA issue cards responsible for about 25 percent of credit card spending in the US.

2005 could also shape up to be a tough year for MasterCard in terms of potential impact to its US payment volume. Two of its largest issuers have announced Amex alliances. One (MBNA) is in the midst of an aggressive roll-out of Amex-branded cards. Another top issuer, JP Morgan Chase, is reportedly still considering its brand decision -- between Visa and MasterCard (or, perhaps, also Amex?).