Major blow to the BA Amex as FCA imposes 0.3% interchange fee cap

The Payment Systems Regulator, an arm of the Financial Conduct Authority, yesterday issued its final view on whether the British Airways American Express cards, amongst others, are already caught by the new 0.3% cap on credit card interchange fees.  The answer, it seems, is yes.

In simple terms, the original plan was this:

So-called ‘four party card schemes’, where an intermediary – ie Visa or MasterCard – sits between the retailer and the card issuer were to face a 0.3% cap on interchange fees

So-called ‘three party card schemes’, where there is no intermediary – ie American Express – would be permanently exempt, except …..

So-called ‘three party card schemes’ where the card is co-branded (eg the BA Amex, SPG Amex) or issued by another party under licence (eg the Lloyds Avios Amex) would be exempt until late 2018

There was a fly in the ointment.  In the third scenario above, the transitional exemption only applied if American Express could show that it had a UK market share of under 3%.  It has failed to do so.

As this guidance issued yesterday confirms, American Express must set an interchange fee on its co-branded and licensed cards of no more than 0.3% until March 2017.  Should its market share drop below 3%, the position will be reassessed from March 2017 – although the exemption will end, regardless, in December 2018.

The bottom line is that American Express will see a substantial reduction in the income it receives from retailers when you pay with a co-branded or licensed Amex card.

BA Amex - NEW

What will change?

In the short term, nothing.  American Express has a contract to operate the British Airways card and will presumably continue to do so under the agreed terms unless there are suitable break clauses in place.  The contract was only renewed in the last 18 months or so.

It is noticeable that the credit card reward schemes to cut their benefits so far are generally those NOT operating under a third party licence.  I am thinking of HSBC Premier, Tesco Clubcard MasterCard and NatWest with Your Points.  None of these schemes involves a third-party branding partner.

The only co-branded cards I can think off which have cut their benefits are the House of Fraser card, the Debenhams card (both issued by the same group) and Capital One Vauxhall card, which was closed entirely.

Once these co-brand contracts come up for renegotiation, of course, you can be fairly sure that there will be some major changes in the benefits offered.  These are likely to involve lower rewards for your day-to-day spending but improved benefits such as status perks, 241 vouchers etc.

One thing remains clear.  The big travel brands want to keep their logos in your wallet and the card issuers want to keep the (generally affluent) group of people who hold airline and hotel credit cards.  Exactly how this will be done will unfold over the next couple of years.

The end result may not be entirely bad.  In the USA, for example, IHG Rewards Club has a $49 annual fee credit card which gives you a free night every year – with no need to spend anything!  That would be a hugely attractive product if it was launched here even if the earning rate on the card was lower than we see now.

The other outcome is that American Express is likely to put huge marketing efforts behind Preferred Rewards Gold and Platinum.  These cards remain permanently exempt from the interchange fee caps and will be considerably more lucrative for the company going forward – and Amex will be heavily motivated to create a benefits package which attracts and retains customers.

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

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  1. Genghis says:

    Great analysis Raffles. Very good article

  2. JamesLHR says:

    Curious what would happen if we exited the EU, would these fee caps disappear?

    These caps hold nothing but increased margins for the retailers, the purchasing public have not seen a change in the cost of goods!

    • But this is incidental evidence surely? By limiting the fees, in a way, it has the potential to create a more level playing field between larger businesses and smaller ones in the current state of play.
      Moreover, unlike most other competitive environments, the VISA/MC/Amex one is a bit different, because unless there is global coordination that results in all businesses being able to take all payment types [for example, a world where there are 20 payment types such as VISA/MC/Amex/Diners, but in which there are regulations that ensure all 20 payment types are accepted globally] then the ideal solution is one universal payment type that is universally accepted. It is a situation where coordination trumps competition, and the current state of play is one of near monopolistic capitalism guised as competition… :)

      • RIccati says:

        This Econ Philosophy 101 does not pay attention to the fact that for the small business, the cost of taking credit cards will NOT change.

        They will keep paying the same percentage they pay on Visa/MC credit card payments.

        The large retailers will pay less but will not lower prices. It will probably allow them to have more slack/waste… can’t really perfectly optimise the operation with scale of Tesco/Waitrose.

      • Pete – could you repeat what you are saying in layman’s language please as I am sure you are making very valid points however I am lost as to the main thrust of your argument (but genuinely want to understand your points) Thanks.

      • It actually favours large retailers over small. I think the cap only applies to merchants on interchange plus plus, which is the big boys. The smaller retailers will be on fixed percentage deals, and the cap doesn’t apply to them.

        That was the case under the visa commitments, not sure if it is the same under the regs.

    • I agree that prices won’t come down. One benefit you might see is Amex being accepted in more places though

      • Is that true? The article says that Gold and Platinum are exempt, so surely subject to the 3% fee. Wouldn’t that mean retailers wouldn’t want me paying with it?

      • I expect more places will take it, yes. Which mullers the business case for these cards which will act as a mastercard / visa and be backed off to an Amex such as the new Curve.

    • Its not really about Europe, its actually more about general freedom. IF a retailer is prepared to pay 0.3% 3% or 33% to get my business that let them. Its Their business decision. Its also my decision to pay an annual fee to get a 2 for 1 BA voucher (if i can find availability to use it). That is IT. Freedom of choice.

  3. James67 says:

    Thanks Rob, a very informative post. Do you think that going forward we might see PRG- and amex platinum-like cards issyed directly by mastercard and visa?

    • RIccati says:

      No, unlike AMEX. Visa and Mastercard consortiums are owned/governed by the participating banks too.

      Mastercard has a premium product (Worldcard) which seems to have lost it’s ‘premium’.

      • The MC World card isn’t a premium product and hasn’t been for some time, it was replaced by the World Elite which is okay but I’ve found Visa Infinite to be a much better product depending on bank.

  4. Hingeless says:

    Will this also apply to the diamond club MBNA card, we still have the one with 2.5 avios per £

  5. Just booked a holiday villa with a mandatory 2% additional charge for purchasing with any credit card. The reality – at least for the moment – is that the rewards schemes are dying off , but the savings the retailers are supposed to be getting are not passed on. Looks like retailers are cashing in.

    • As the owner of a retailer I can tell you that retailers are not ‘cashing in’, it’s a brutal environment out there and any reduction I have seen in c/c fees has been passed on to the customer to improve competitive position.

      • Also despite the changes in interchange rates, much of this is swallowed up by the payment processor that still charges the retailer the same fees they did previously!

        • Very true. I have yesterday received a letter from Elavon which purports to show me discounted fees due to legislation changes but in reality, the only reduction is in some commercial card fees and yet the basic credit card fees haven’t been reduced from what we negotiation, though I accept we have a very good deal.

        • That is just not possible. The cap applies to merchants who are on I++. Their invoice breaks out the interchange, scheme fee and merchant service charge separately. The acquiring bank has to pass it on, it’s mechanical.

          If the merchant is not on I++ and is charged a flat percentage, the cap doesn’t apply so there is no saving to be passed on or not.

          • Your 2nd para is exactly the point I made – many small businesses are on fixed rates that are unlikely to change despite a fall in interchange rates.

            • The fixed rate cannot change, because there is no reduction in the interchange on those arrangements. That’s not the acquiring bank’s fault, it is just how the rules work.

              The idea that the acquiring bank is somehow profiting from the this by not passing on an interchange saving is just not possible.

            • OK interesting, I’d thought the payment processor was benefiting from the interchange difference and pocketing the difference by still charging the same fee to the retailer.

            • RIccati says:

              Yes, Alan, the payment processor benefits not the acquiring bank.

              The processor can be the bank’s subsidiary company or a third party like Worldpay.

      • The big retailers are not cutting prices to reflect actual CC fees, so perhaps it’s more of a case of the big retailers stealing from the little ones. Bless the EU protecting big business.

    • As a small operator this is costing us quite a lot money – we dropped the 4% credit card fee (which just covered our CC costs) due to all the publicity about “rip-off” fee charges . More people are now paying by cc but the overall volume hasn’t changed – previously they would have paid with cash, debit card or bank transfer. We’ve seen little change in the charges from the processors / banks – it’s still c. 3.5% even with “charity rates”. If someone is cashing in it’s definitely not us.

      • RIccati says:

        4% cost to accept a credit card payment?

        A lot of small businesses simply don’t look for the best deal/don’t shop around/negotiate.

        If Squareup does UK payments (e.g., accept payments in pounds), the fee is 2.75% including AMEX

        Card reader is 49 USD… plus ApplePay, magnetic stripe reader, manual key-in possible.

        • Easy to blame the small business but we actually did shop around. The cost is a combination of Worldpay’s own fees and our bank which charges several percent to receive payments from WP. We tried negotiating and got very short shrift.

          • You didn’t do a very good job then. I take very few cc payments and my world pay cc rate is 1.6% on personal visa/master cards when using chip and pin.Zero fees for depositing into my bank.

            I take less than £2k per month through my merchant account.

            Using world pay and 123 send for the terminal.

            The new PayPal Card reader is probably a better solution for ultra low revenue in person card payments.

            • Can you help Susan out with who she should contact, exmples to cite and the arguments to make ? Sounds like she could do with some helpful assistance for the charity she is working for.

  6. Whilst I am not a Brexit campaigner (still very undecided) I am definitely fed up with the EU “protecting” me by making my life harder! I already need to pay for two sports packages, pay for software that used to come with the operating system and pay more for my phone bill so some people can spend hours on the phone from the beach in Spain. Now I will lose a major points earning opportunity!

    Please stop protecting me, I can’t afford much more.

    • OT but interesting to hear of undecided folk, the majority I know are clearly against leaving but that just shows the ‘bubble effect’ i guess! (the majority in the scientific and medical fields are against leaving as are the majority of those in Scotland –

    • RIccati says:

      Unfortunately, the shocks to the pound, trade and employment will be so much that points, as valuable as they are, will be the least of our problems.

      There were studies on how to let Greece go and the conclusion is that EU was not designed for the countries to exit — there are no provisions, a lot of legal uncertainty and cost.

      It is supposed to be one-way, irrevocable change.

      • Bobstrr says:

        You seem to be confusing the EU and the Eurozone

        • RIccati says:

          Not at all. No confusion.

          There is shock to the pound sterling after each pro-exit survey results. There will be stronger shock (depreciation in pound vs major currencies) if the public votes to exit.

          If you are implying that it is the Eurozone that suffers… things go in the opposite direction which also does not help the pound.

          Euro seems on the appreciating path, now that ECB said it won’t be lowering rates/adding to monetary easing after this ‘final’ addition in March (asset purchases up from 60 to 80bln).

      • Really?? I doubt very much that anything would happen, apart from a stronger GBP. The world has a myriad of free trade agreements. You dont have to be part of a “club” to join. Our biggest problem would be all the returning EXPATS from the Costas, because it will get bitchy.

        • We are not talking hypotheticals.

          Every time the survey with pro-exit results is out, the pound sterling drops. It has been this way since Oct/Nov.

          EU and its member countries already made it clear that the current trade agreements and relationships (with the UK) will not be continued automatically.

          UK would cease being a party to EU-wide treaties and will leave the Customs Union.

          There is no ‘myriad free-trade agreements’ — they are actually painful and slow to negotiate and implement — look at the Pacific one. Instead, there is WTO which arbitrates disputes about tariffs and levies. With the economic slowdown, the world is going away from tree trade and everyone closes markets up and favours protection measures.

          • Free trade agreements are not painfully slow to agree and implement outside the EU. Countries make them all the time. It’s only in the deeply protectionist EU that they take years to negotiate. The EU is hardly going to cut off one of Germany and Italy’s major markets for its manufactured goods, is it? It’s mysterious how other countries and their currencies survive outside the EU (which is lurching from one distorter to another) isn’t it?

            • RIccati says:

              “Free trade agreements are not painfully slow to agree and implement outside the EU. Countries make them all the time.”

              Huh. From Wikipedia

              Trans-Pacific Partnership (TPP) is a trade agreement among twelve Pacific Rim countries signed on 4 February 2016 in Auckland, New Zealand, after seven years of negotiations, which has not entered into force. The 30 chapters of the TPP Agreement…

          • It does drop, but where also getting worse economic data and forecasts as time goes on so its trend will be downward.

            What I really want explaining is why GBP would weaken if we left the EU. Is it speculative (ie driven by perception) or is there a solid reason why people will want to sell lots of GBP’s and fewer will want to buy them?

            • RIccati says:

              Shock to the system.

              Uncertainty if UK financial services will be able to provide safe custody for the capital.

          • A great many of our trade agreements with European countries are bilateral and not linked in anyway to membership of the EU.

            • RIccati says:

              Aren’t they superseded by the EU-wide agreements and the Customs Union?

              According to the Union rules, all EU countries must exercise the single schedule of tariffs and negotiate altogether.

              So, the past bilateral agreements are unlikely to work. If there is an exit, the UK will have to negotiate tariffs with EU as a whole, most likely via the WTO.

        • Free trade agreements are not common and take ages to negotiate. I think you are thinking about Double Taxation Agreements.

  7. andijs2000 says:

    I fear this is the thin end of the wedge and a day looms when a decent long haul free flight in a premium class will take years to earn :-(

  8. SouthernEM says:

    RE: NatWest with Your Points
    I thought this scheme ended. I’m sure I received a letter to so.

    • yep – finished

    • Long gone. My Father had their black card and he used to get several hundred pounds of redemptions out of mypoints every year. He was fuming as it massively cut the value he got from the card with no attempt from Natwest to recognise that loss or mitigate it in anyway. They didn’t reduce the annual fee either – jokers !

  9. Stephenf says:

    Vote out!

    • RIccati says:

      And lose 20-30% of your earning for the next one-two years as the pound drops and time will be required for uncertainties to get resolved.

      • That is as stupid a comment as Harold Wilson’s comment about the pound in your pocket not being worth less after devaluation. Both are obviously wrong.

        • RIccati says:

          Wow, Sir. Your comment is very smart, apparently!

          There will be shock to the pound and that shock is not going to clear as a matter of months, so we are talking a year or more.

        • RIccati says:

          Clearly, we are not talking about inflation here.

          But this forum is about international travel and should the pound fall in value due to Brexit, it means loss of purchasing power abroad.

          20% is not an unreasonable projection and about 8% of the down move has already occurred from the year’s start (depends on the measurement vs. the basket of currencies or US Dollar index).

    • +1

    • Aeronaut says:


  10. I’m happy to be corrected but I don’t think the X-party distinctions are as you describe. As I read it, a three-party scheme is any where the the card-issuer and transaction-service provider are one and the same; i.e. in the UK that’s only Amex. That particularly covers the Amex charge cards but I don’t think branded cards (BA, SPG) are separate from that, whereas actual licensing-out (Lloyds/MBNA Amexs) is distinct (and was already consider four-party, no-exempt, ref 2.13). The three-party Amex cards could be exempt but the 3% test means they can’t be.
    So I think all cards other than those issued by Amex were previously caught. What happened yesterday was that the possible exemption for Amex-issued cards was ruled out, and that affects BA/SPG and Gold/Plat for me.

    • JamesLHR says:

      The document details debit cards and credit cards, but Gold and Platinum are charge cards, potentially the get out to be treated differently?

  11. Interesting that the non-cobranded cards aren’t covered by this. I can’t see retailers being able to differentiate between different types of Amex card so this could potentially be positive. Would love Amex to improve Plat benefits further, I’ve kept it for a few years but it has only just squeaked through on a value for money basis some years when I’ve reassessed whether to keep it or not!

    • Good point. I’m not sure if the honor-all-cards rule still applies but it send unlikely that retailers would accept co branded amex cards but not plat.

  12. RIccati says:

    The first reaction is wow, even though AMEX awards Avios or SPG points, the payment system remains completely AMEX and there are no intermediary banks…

  13. RIccati says:

    — Amex will be heavily motivated to create a benefits package which attracts and retains customers.

    I would not bet on this as UK customers might not have anywhere else to go.

    But, this also increases the appeal of products such as Curve even with a fee. Granted that general public might not be aware/innovative enough to subscribe, but the affluent travelling crowd who spends in other currencies have all incentives to use Curve/Supercard vs 2.75% fee-charging AMEX.

    • Correct !! They could devalue their offering and it’d still be the best available once all the others dilute mercilessly.

  14. The BAPP at £150 a year needs to pay its way and the only way it does that is if you earn fast enough to take advantage of the BA 2 for 1 voucher.

    We need around 180k Avios to get our tickets and as I wasn’t travelling this time, my wife had to get her card and we shovelled £10k through that to get a voucher in her name. Admittedly with businesses that is not as difficult as someone just shopping at Sainsburys.

    However, getting those 180k Avios took a couple of years and came at a cost of £150 x 3 plus a little bit of sign up bonus. Looking forward we will probably take another couple of years to pick up another 180k Avios discounting sign up offers.

    With taxes on the business tickets costing me £1050 or so and with no chauffeurs and a very poor product on the LHR-BKK leg then the physical cost (adding in chauffeurs at £200) is £1050 + £200 + £450 = £1700 which roughly equates to one Etihad ticket.

    As Etihad offers regular points bonuses and I don’t fly BA then the circa 20% benefit of those bonuses reduces the Etihad price to around £1500 or so which makes the 2nd ticket cost only £1300 (BA £1700 versus Etihad £1700 – £200 rewards value).

    Then I could add in the cost of transferring that Amex spending to another reward card ? Well, if 180k points is £120k of spending, then that £120k of spending will provide 120k Marriott points which will give me 6 days in a good hotel in Asia, where I stay on cash as well and which is worth circa £125 a day or £750 in (post tax) value. Netting those brings the Etihad difference down from £1300 to £550.

    However if you were to tax up the cash spend on the hotels then that near doubles the cost so that £750 rises to say £1500 which crosses the threshold of where the cash Etihad cost falls below the BAPP cost plus taxes etc.

    I say it is borderline in my position but it highlights the fact that any devaluation in the benefits received means that I will likely ditch the card. That is what someone at Amex needs to realise.

    However, if BA had some decent Club Class seats it might be another question !

    • Talay if it takes three years to spend £10,000, use the free card and then upgrade to the BAPP shortly before you hit your spend, the points transfer.

      • If I have spent over £10k on the free BA Amex , can i upgrade now and trigger a 241?

        My card anniversary is just a few weeks away…

        • Yes Chris you absolutely can, done it a few times. Typically all you need to do is apply online and assuming you get accepted straight away for the BAPP it takes about a week for your current BA Amex to convert.

        • Yes

      • I do nearer to £10k a month but the required points at around 200k take up to two years to accumulate.

    • And that is all based on being able to get reward availabilty.
      For the first time in 5 years I was unable to use our 241’s this year due to lack of availabilty, but Etihad did have availabilty when we wanted to travel. BA availabilty may have opened up but then I would have missed out on Etihad availabilty. The only inconvenience was 2 in F and 2 in J as oppose to 4 in F on BA. We also have a chauffeur collecting and dropping us off.
      Etihad cost 90k more than BA ( 241 v 75% miles and cash) and the taxes all in aren’t dissimilar.
      I used our 241’s to Oslo as they were going to expire :(

    • Very well explained from your perspective. I am different and spend 20k every month on a card. I have alot of miles/points on varying schemes. I would like the CHOICE to pay on what ever card I like, and I would also like the retailers to decide if its worth me buying a 100 pound bottle of wine, and they pay 3% of their 100% markup, or i go to a different establishment and they lose out. Its just about choice and freedom.

  15. What is an interchange fee?

    • It is meant to equate to the fee the shop pays the card company, was 0.75% for Visa and 1.5%+ for Amex. In reality shops pay more as fees need to cover terminal rental etc.

  16. By the way, specific to this issue (interchange fees) people might not realise that even if UK exits EU, the regulation on this and a myriad of matters will still be mirrored or as EU bureaucrats of 1970es call it “harmonised”.

    For example, if an average EU country charges VAT at 20% then the UK will also be charging circa 20%.

    If the interchange fees are capped in the bloc, then most likely they will be capped in the UK whether it is a full member or ‘an associate with agreements’ like Norway.

    • Yep, on the moment of exit all EU laws that were incorporated in to UK law will still be UK law until repealed.

    • This is another good reason to leave.

      • RIccati says:

        Have to look at this more closely.

        Inside/outside of the EU, the UK might not be in a position to exercise a significantly different policy in the number of areas and matters, economic, social, healthcare, etc.

  17. I would have thought this will actually hit BA. The value of Avios will have to reduce when being bought in bulk by the credit card issuers…. BA either sell less Avios since credit cards will earn less points or BA reduce pricing to keep some kind of incentive in place.

  18. OT anyone know why taxes on would be vastly different to I am looking at HND-LHR one way, and is £63 while is £213!

  19. OT
    Has anyone yet received the 1000 Virgin miles for registering for auto conversion at Tesco (Feb/Mar 16)?

  20. Roberto says:

    OT had an email from curve today ensuring that they had my details correct and stating that ” Curve starts shipping at the end of March. We’ll be automatically dividing cards into batches and shipping over a four week period. We’ll email you again when your card is sent, and we won’t take any payment until then. ”

    Be nice if it turned up before my supercard switches off..

    • Genghis says:

      Yes. I got that too but email also said I had to add a payment card in the curve app before my curve card will be shipped.

      • Roberto says:

        I did not get asked for this extra task but added one based on your comment. Thanks.

      • I got that email, my wife just got an email from curve but I think I’ll add a payment card to her app.

      • Scallder says:

        Got this email too – however they seem to have already taken the payment for the card from my Amex!

      • I got that one too – had to add my card !

    • I’ve had to cancel mine as I’ve closed the card that they had for payment (I’d been expecting them to take the cash straight away) and the only way they can take new card details is via the app and I don’t have iOS.

    • Indeed. It translates as:

      “Yes we told you the new cards would ship in March, however that was just a bit of blether. The reality is, we’re mucking about behind the scenes and the reality is you’ll be lucky to receive it by early May.”

  21. Very interesting. Some retailers have saved literally millions from Interchange Caps. One big benefit to the industry has been a huge simplification of the fee structure, as prior to the EU regs there were many different fees and fee types in each market, now at the 0.3/0.2% on consumer cards this makes life a lot easier for anyone involved. As has been said the reductions will flow automatically to those on interchange++ pricing (fully transparent), however those on blended (fixed %) rates will have to negotiate a full or partial discount to gain a reduction in their fees – there is a chance in the future though that regulators will require all merchants to be offered interchange++ though.

    • The truth is that interchange ++ fees are not offered across the board, just as fixed debit card fees are still being offered today !

      • Aeronaut says:

        Things can change. Particularly if retailers aren’t benefitting (especially smaller ones). None of this is set in stone.

  22. OT. Had an email from curve today saying: “Curve starts shipping at the end of March. We’ll be automatically dividing cards into batches and shipping over a four week period. We’ll email you again when your card is sent, and we won’t take any payment until then.

    We just need you to check your order details and let us know if any changes need to be made. No need to contact us if everything looks good.”


  1. […] author of the following article is a particular expert on this subject: Major blow to the BA Amex as FCA imposes 0.3% interchange fee cap What this means is that the BA Amex card will become subject to the same 0.3% cap on interchange […]