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

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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

British Airways BA American Express Amex credit cards

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.

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.

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Comments (98)

  • 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.

      • DV says:

        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).

    • Kipto says:


    • Aeronaut says:


  • pauldb says:

    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?

  • Alan says:

    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!

    • nick says:

      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.

  • 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…

  • 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.

    • JamesW says:

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

  • Talay says:

    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 !

    • Ralphy says:

      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.

      • Chris says:

        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…

        • h2d says:

          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.

        • Rob says:


      • Talay says:

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

    • Yuff says:

      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 🙁

    • steve says:

      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.

  • James says:

    What is an interchange fee?

    • Rob says:

      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.

  • RIccati says:

    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.

    • Mike says:

      Yep, on the moment of exit all EU laws that were incorporated in to UK law will still be UK law until repealed.

    • DV says:

      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.

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