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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.)

Comments (74)

  • James67 says:

    Thanks Rob/Chris, it looks like January 16 will likely herald further credit card devaluations as opposed to the usual flurry of sign-up promotions. My interepretation of ths is that for those of us who have not yet done so, we would be best to take advantage of one of the IHG card offers running at the moment while we can. Given the mixed reports on Barclays rules it may even be worth taking a chance even if you believe yourself to be no longer eligible. Although not directly affected, it is probably a good idea to take up the SPG card now too if you have been targeted with a 20k bonus. Same arguements may actually apply to any card, regardless of whether there is a sign up promotion or not, for example I cannot see any Hilton category weekend night fo r a £750 spend lasting long in this climate. For the majority of us I believe the game is fundamentally changing to one in which cheap revenue fares becomes the principal goal whilst miles collection becomes secondary. indeed a good balance is probably to spend cash for medium and longhaul promotional fares, and save mikes for RFS and last minute bookings where promotions may not be available.

  • n says:

    All of this is thanks to Chris?

    Why, Chris, why?


  • Lee says:

    Would this ever mean that in order to snaffle new customers they’ll reduce the amount of points/miles needed for rewards? I mean, if rewards simply begin to look unattainable people will quickly lose interest in reward schemes altogether..

  • Amtexfly says:

    Would you expect charge cards to remain exempt from these changes?

    • Guesswho2000 says:

      If they’re issued by Amex/Diner’s Club, yes (which most/all? Of them are).

    • Rob says:

      The wording only ever talks about credit and debit cards but, in theory, if MasterCard had a charge card I reckon it would be included. Amex will retain its exception for its own cards though.

  • Mark says:

    I think you need to make it clear the interchange fee is not what is charged to shops. It’s what’s charged to payment processor.

    Shops still pay and will continue to pay the same amount it won’t change.

    I pay 1.1% for credit cards and 11p for debit cards 1.9% for Amex. It’s been the same for severa years and when I get the umpteen cold calls each month saying they can save me money on transactions and I ask if they can do credit for 1% and debit for 10p they all put the phone down. Not once has anyone ever tried to beat it!

    So the shops aren’t making any more money. Just the processor.

    • Rob says:

      I did say ‘it is roughly equal to ….’ which is what, in 6 months, it will be. The Government will legislate against the processors otherwise.

      Remember that HMRC has just increases its card fee to 1.5 per cent though …..

    • Andrew (@andrewseftel) says:

      Large retailers are on ‘interchange plus’ agreements where they pay a margin above the interchange rate for the transaction. Tesco et al will be laughing. Otherwise yes it’s just a large transfer of profit from card issuers to acquiring banks for the time being. No immediate benefit to the small businesses and consumers.

    • Talay says:

      We pay a shade over 1% on credit, 0.3% or thereabouts on debit (since the move off fixed fees last year) and 1.9% on Amex.

      We cannot budge Amex, so we do not promote it at all and in fact, as our average card transaction is circa £25, we are far better off on debit at around 7.5p against credit at about 27p and Amex at 47.5p or roughly about 633% the cost of a debit card !!!

      If we did large transactions or huge values, I would never take Amex at all.

    • Nick says:

      It depends on what you’ve negotiated with your acquiring bank. Some merchants are billed a fixed percentage which incorporates the interchange (fee to card issuer); scheme fee (fee to Visa/MC); and the profit for the acquiring banks. Unless they renegotiate that fee, it won’t go down because of the changes. Other (generally larger) merchants could be on a more transparent plan where those three elements are broken out separately (Interchange plus arrangements). They will feel the benefit of the changes directly (and already have, for Visa).

  • tall trader says:

    All these credit card companies are american so i can see why europe wants less money in their pocket and more in european retailers pockets… But retailers wont cut their price from e.g 2.99£ to 2.97£ so in the end clonsumers are the loser…
    If amex charges are the same as visa/mc, amex acceptance might increase though…
    How long before amex cut the 20 000 bonus on the gold card?

    • Rob says:

      That’s not how it works though. It is like your kid asking for more pocket money because petrol is now £1 per litre so you are making savings. The real world is not that clear cut.

    • Andrew (@andrewseftel) says:

      In the UK, the high street banks (including Barclaycard) have a majority of the card market.

  • Isodrac says:

    Is this really all that concerning? Given the headline prices of the ex-DUB flights on the home page, which will still earn avios rather than needing them to be redeemed, surely the points collecting game is almost up?! The cost of a paid flight will only be fractionally greater than the taxes and spurious surcharges levied on a redemption!

    • David P says:

      Depends on where you want to go. I’ve never seen sub-£1000 ex-EU fares to the Caribbean (specifically Barbados) in J/F so for me it’s still worthwhile collecting avios and 241s for this purpose.

    • Rob says:

      These DUB fares only cover a short period of time remember, and to a small number of places.

    • lady London says:

      Just wait till the cost of fuel ramps up again… which it will.

      It has now been some time since essential infrastructure projects started being cut due to the oil price per barrel having gone lower than the point where investment could be sustained on many key projects in the industry. This means that the investment is not going to be there and prices will sail through the roof again when the tide turns.

      I’ll predict that we are going to be very sorry about our fuel prices in the next 3 – 4 years or so. It won’t take much for the tide to turn and fuel, and thus the airlines’ fuel costs, to go racing up again. Fuel pricing is always vulnerable to politics and events around the world.

  • Mr Bridge says:

    Would it be fair to say that the April avios devaluation could have been partly as Credit card companies had much advance warning, and pre negotiated a better rate of avios purchase with BA. I am sure BA do not want to lose the valuable income stream from credit cards, so it would make sense that they would be flexible. In short just like the markets, much of the reaction has already been priced in?

    • John says:

      I think devaluations are a fact of life rather than a reaction to outside forces (apart from other airlines devaluing)

    • Rob says:

      No, this was a profit driven move pushed through by one person at BA pretty much against the wishes of the entire team.

      • RIccati says:

        Talking about social responsibility and government relations.

        That decision alone had an impact on tens of millions of people, who collect actionable amounts of Avios.

        There really must be safeguards in place to protect stakeholders, rather than just shareholders. Particularly as BA operates as a flag carrier and not paying cash for the branding and privilege.

        • Callum says:

          Does flag carrier mean anything anymore? They don’t have exclusive use of the flag or the country name. I don’t see why BA would have to pay cash for branding and “marketing”?