From my recent post to this question on Quora.
American Express has always charged higher merchant interchange rates than Visa, MasterCard and Discover. They justify these rates to merchants by claiming to have a higher end card holder base that spends more money with retailers and is, therefore, worth more to the retailer.
PayPal pioneered the simple blended interchange cost structure for merchant accounts. The theory was that merchant fees were excessively complicated and unfriendly to merchants, with different rates for different categories of goods of services or different card types, etc. PayPal took the merchant friendly route and offered merchants a simple to understand blended fee structure. It is a much more merchant friendly form of pricing, hands down.
The problem with PayPal’s simple blended average pricing for Amex was that it undercut Amex’s pricing in the market. It became cheaper to accept Amex through your PayPal account than it was to go direct to Amex. This was obviously an issue for the Amex merchant sales team. So. Amex went back to PayPal and required them to break Amex out of their blended pricing structure. This was a multi year negotiation, as you can imagine.
PayPal’s marketing materials now have the following footnote on pricing: “2 This fee applies to Visa, MasterCard, and Discover transactions. American Express transaction fees are 3.5% + $0.00 USD EA. effective July 13, 2010 for new merchants and October 25, 2010 for existing merchants.”
With respect to Square, they are positioned exactly like PayPal. Their merchant friendly simple blended pricing for card present transactions is below what you would be charged directly from Amex. I think it is reasonable to assume that Amex will ultimately go back to Square and take issue with their pricing model.
Timing is another thing, however. PayPal didn’t ultimately break out Amex pricing until they were at a total payment volume of >$50B / year. So, Square likely has some time to figure this out.