The Government turns the screw even further on your reward credit cards

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I have written extensively about the new European Union regulations on credit card interchange fees which came into effect last week.

This article covers the key information.

You could (note, could) have summarised the situation as follows:

  • The EU is capping the interchange fee (roughly equivalent to the fee charged to shops) on credit card transactions at 0.3%.  Historically this has been around 0.8% for Visa and MasterCard transactions.
  • Debit card transactions are capped at 0.2%
  • Only Visa and MasterCard are impacted
  • American Express is NOT impacted directly.  Additionally – and this is important for our niche – Amex cards issued by MBNA, Lloyds and Barclays are not impacted until 2019.

We have already seen the some major changes in the market:

Could it get any worse?  It just has.

Credit cards

On 8th December, the Payment Systems Regulator (PSR) – the part of the Financial Conduct Authority which oversees the implementation of this law – made an announcement.  You can read it here.

American Express cards issued by MBNA, Lloyds and Barclays will NOT get a three year grace period.  With immediate effect, the interchange fee on these cards must be cut to 0.3%.

This has come about because the PSR has decided to impose a clause in the rules which exempts any card company with a market share of above 3% from the grace period.  American Express has a UK market share of above 3%.

This is, admittedly, just a temporary ban until 31st March when a final ruling will be issued.  It is difficult to imagine how the final ruling will be any different, however.

What does this mean for loyalty credit cards?

What it appears to mean is the end of the American Express / Visa or American Express / MasterCard double pack.

As Amex cards issued by third parties are now restricted to the same 0.3% fee as Visa and MasterCard, it is pointless to continue issuing them.

Unless the final ruling in March sees a dramatic turn around, we will presumably see the removal of American Express cards from the BMI, Lufthansa, Lloyds Avios, TSB Avios, Etihad, Emirates, Virgin etc credit card ‘double packs’.  This will mean that only the low-paying Visa or MasterCard option will remain.

This ruling has no impact on American Express cards issued directly by Amex

For clarity, Amex cards issued by Amex itself are not, and will never be, impacted by these EU rules.

This means that the British Airways, Starwood, Nectar, Gold, Platinum, Platinum Cashback, Green, Harrods etc cards will continue as they are.

Don’t count your chickens too soon, though.  With Visa and MasterCard charge cut to 0.3% from 0.8%, shops are less likely to want to pay the typical Amex charge of 1%+.  If Amex is forced to cut its fees to retain key contracts, this will be passed on in the form of lower rewards.

The squeeze on your rewards credit card just got tighter, I’m afraid.

(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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Comments

  1. I can’t help thinking getting the 3% fee most cards charge on foreign transactions would help consumers a lot more than this.

    It will be interesting to see what retailers especially the small ones do about accepting AMEX, I imagine most people if they go to a small shop who don’t accept AMEX just use another card and it doesn’t influence if they will return to the shop.

    • From a ex-UK perspective I can tell you that the 3% you have here is a rip-off. Standard fee is 1,5% in scandies and many card have 0%. Even Amex charges “only” 2%. I also note that Amex-plat have 0% in the US.

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