Amex loses EU appeal on BA Amex interchange fees – what next for the loyalty co-brand card sector?

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The end could be approaching, medium term, for the free British Airways American Express credit card after American Express lost a key European Union ruling last week.

The decision is highly likely to mean that merchant fees on the British Airways, Starwood, Nectar, Costco and Harrods American Express cards must be capped at 0.3%.  American Express Gold, Platinum, Business Gold and Business Platinum will remain uncapped.

In effect, although this is not strictly how it works, the interchange fee is the fee charged to a retailer for accepting a payment card.

You can read the full Advocate General ruling here.

This is not binding on the High Court of Justice for England & Wales but – as it was they who asked the EU Advocate General for his opinion – it is almost certain to be accepted.

It doesn’t take a genius to realise that the free British Airways American Express is a dead duck long term with 0.3% interchange fees, given that Amex will be paying BA something close to 1p per Avios for the points.  Interest income and interchange and FX fees from foreign usage are unlikely to fill the gap, especially with 2-4-1 vouchers to fund as well.

Given that the BA Amex cards have billings of over £1 billion per month, however, it is a problem that both BA and Amex will need to solve before the current contract expires.

BA Amex cropped


Let’s step back a bit.

Last year, the EU capped the interchange fees charged by Visa and MasterCard at a maximum of 0.3% for personal credit cards.  Fees were previously 0.75% and above.

It claimed, arguably correctly, that the two companies were exploiting their oligopoly on payment processing by charging disproportionate fees, especially as all of the risk was taken by the retailer (in case of charge backs) and the card issuer (in case of bad debts).

In theory, American Express should have nothing to do with this.  Amex is vertically integrated and there is no intermediary sitting between the retailer and Amex who is adding additional fees.  A retailer was free to either work with Amex, paying the fees they requested, or not.

The EU law is badly worded, however. It states (and this is a massive simplification on my part) that personal cards which involve four parties – for Visa, this is the customer, the retailer, the payment processer and the card issuer – must have their interchange fees capped.

American Express Gold and Platinum charge cards, and Platinum cashback cards, clearly only have three parties involved in the process – the customer, the retailer and Amex.  No problem there.  These cards are not and will not be capped.

However, the court has found that, as drafted, a Amex-issued card with a co-brand partner means that there is a fourth person in the relationship.  The BA Amex involves British Airways, American Express, the retailer and the customer.  And if a card has four parties involved, it MUST have its interchange fees capped at 0.3%.

This is the question put to the Advocate General:

“The referring court asks the Court of Justice to clarify whether, in those circumstances, the activities of a three party scheme can be treated as those of a four party scheme, for the purposes of the Regulation in all cases (in other words, it is sufficient that there is a co-branding partner or agent) or only if a co-branding partner or agent is a payment service provider which issues the cards.”

The latter bit – “only if a co-branding partner or agent is a payment service provider which issues the cards” – is what happens when MBNA issues an American Express card.  No-one is doubting that these cards should have their interchange fees capped.

Surely, though, there is a huge difference between MBNA licensing the Amex brand in order to issue a credit card and American Express using the BA brand to sell its own cards?  As the ruling admits:

“[the co-brand partner would] merely provide the three party scheme with access to their customer base”


“Amex and the United Kingdom Government submit that, if the co-branding partner or agent confines its activity to the distribution of cards, technical payment services or simply the processing and retention of data, it does not act as an issuer, so that arrangements for the extension of three party schemes are not covered by Articles 1(5) and 2(18) of the Regulation, which means that they cannot be considered to be the same as four party schemes.”

What is more complex is that American Express doesn’t even charge interchange fees because there is no intermediary.  There are no interchange fees to cap.  Instead, it has to cap its general fee charged to retailers.

To give an example of how this comes down to interpretation of the exact wording of the law:

“In their submission, Articles 1(5) and 2(18) of the Regulation refer to three party schemes which ‘issue [cards] with a co-branding partner’ and which ‘issue [cards] through an agent’. They [Amex et al] contend that the terms ‘with’ and ‘through’ show that the co-branding partner or agent must be involved in the issuing of the card, to which end they rely on the connection between those provisions and other provisions of the Regulation.”

Amex lost:

“In short, Articles 1(5) and 2(18) of the Regulation must be interpreted as meaning that a three party payment card scheme issuing card-based payment instruments with a co-branding partner or through an agent must be classified as a four party payment card scheme, regardless of whether or not the partner or agent is involved in the issuing of cards and/or the acceptance of payments.”

BA Premium Plus Amex

What does this mean for the British Airways American Express and other co-brand Amex cards?

We can’t be sure.  In the short term, nothing, because the existing contract will continue to run.  Unless there are a lot of people paying interest, it is likely that American Express will now be swallowing losses on every transaction on the free British Airways American Express.

The British Airways Premium Plus card, with its £195 fee, looks secure.  I can see how the economics of that card continue to make sense in a world of 0.3% merchant fees.

If we look at what MBNA has just done with the American Airlines credit card, we can see what may happen to the free BA card:

As of last month, the MBNA AA card is £70 per year (previously free)

The Visa card now earns an impressive 1.25 AA miles per £1 (previously 0.75 miles per £1)

There is a 15,000 mile sign-up bonus

There are no incentives for long term spending on the card (a mistake, in my view)

My article on the changes to the AA card is here.

SPG Amex

Amex has a strategic problem in the UK

With its fees on co-brand cards capped at the same level as personal Visa and MasterCard products, there should no reason for shops not to accept it.  Amex acceptance could become universal.  This is a great opportunity if the company chooses to embrace it.

Except ….. for that to happen, Amex would have to slash the rate on the Gold and Platinum charge cards and Platinum cashback cards too, even though it doesn’t have to.  Shops won’t welcome Amex with open arms if they know that they will still get legged over if the cardholder pulls out a Preferred Rewards Gold instead of a British Airways Amex.

(Shops have this problem with Visa and MasterCard too, to be fair.  They still pay full interchange fees on cards issued outside the EU, on premium cards such as MasterCard World Elite and on business Visa and MasterCards.  In theory shops will be allowed to refuse cards which charge a fee higher than 0.3% but it is very unlikely that they will.  It would require terminals to display the fee after a card is swiped and for the retailer to then decide on the spot whether to continue or refuse the transaction.)

Amex Nectar

How far is Amex willing to bend to protect £1+ billion of monthly billings?  

Good question.  The free British Airways American Express card at 1 Avios per £1 has an earnings rate 3x – 4x higher than the Lloyds Avios Rewards (0.25 Avios per £1, £24 fee) or Tesco Clubcard MasterCard (0.3 Avios per £1 if you convert, free).

Arguably, you could charge £50 per year for the basic BA Amex and would still represent decent value for a high spender if Amex was accepted everywhere.

You can’t just compare it to other Avios cards, however.  There are plenty of cashback Visa and MasterCard products which seem to survive with 0.5% rewards when paid in store vouchers.  At a £50 fee, anyone spending under £10,000 a year on the free BA Amex would be better off dumping it for a free ASDA (or John Lewis, or Amazon) credit card paying 0.5% back in vouchers.

Costco Amex

Perhaps the benefits package needs to change

I have been saying for a while that I expect airline status to become available via a credit card in the medium term.

Would you pay £495 for a new British Airways Elite American Express card which came with BA Silver status, potentially with a £20,000 spending threshold?  

Would you pay £195 for the British Airways Premium Plus if the earning rate was cut to 1 Avios per £1 but you also received free British Airways Bronze status?

Or perhaps the driver is tier points and Avios?

Would you spend more on your American Express cards if you also received 1 British Airways tier point for every £50 spent?  

That would give Silver with a £30,000 spend even if you took no flights.

Or perhaps 1 tier point per £100 spent, allowing the top tier of spenders to receive Silver status with £60,000 of purchases?  

That seems too high.  £30,000 may be more likely, unless BA intended these tier points to be a top up rather than the sole way to status.

There will also be more dedicated business credit cards.  Almost no-one knows that there is already a British Airways Corporate American Express card.  This card will not have its interchange fee capped, and it makes sense for American Express to put a lot more marketing effort behind it.

This is the future, I believe.  A future where co-brand partners need to bring more to the table if they want to keep their logo in your wallet as a marketing tool.

For years the airlines and hotels have had it all their own way.  They found a way of placing their logo in a prominent position – on a payment card – where you would see it every day.  And, instead of actually paying for this exposure, they were making money, lots of money, from it.

Those days are gone.   It would be a foolhardy loyalty programme that decided to walk away from such an amazing marketing tool though, even if they have to actually spend money – instead of making money – to achieve it.

Harrods American Express

Is this the new model?

The IHG Rewards Club Premium MasterCard is the model.  This is a very clever piece of work, and qudos to the IHG and Barclaycard teams who came up with it:

You pay an annual fee of £99, so the card issuer is guaranteed revenue

You receive free Platinum status in IHG Rewards Club, so there is a reason to keep it long term

You earn 2 IHG Rewards Club points per £1, which count towards status – which means that high card spend helps push you towards top-tier Spire Elite 

You get a free night voucher for spending £10,000 per year on the card – which, given it could be worth £250+, you’d be crazy not to aim for

Change ‘IHG Rewards Club’ for ‘British Airways’ in the bullet points above, tweak the numbers and I think you have the model for where we will see the two British Airways American Express cards in a few years time.

You can read the full European Union Advocate General judgement on the American Express co-brand interchange fee case here.

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  1. Canuck says:

    My father in-law has the AirBerlin topbonus credit card which gives him one-world status. So Rob’s predicted trend is perhaps already in momentum.

  2. Grimz says:

    O/T Slightly!
    My Partner downgraded the BAPP card to the free (blue card) when she triggered the 241 voucher, there was minus points on the card so we never cancelled. She is away to refer me for the BAPP card so as I can hit the 25k bonus and then I will cancel as we are a family of three and I use the Lloyds card. What I need to know is when do I upgrade again so as she can work on year 2, 241 voucher? Is it right that I can keep the free card going and start spending on that for year 2 and then upgrade when I am close to 10k? Be great to hear your strategy on this one! Regards Grimz

  3. Robert Haynes says:

    This isn’t relevant to the blog post but I have a question.

    I spend around 20-30k per month on cards and want to maximise this in points. What is the best strategy? I already have the bonuses from the gold amex, do I cancel it and re-apply in a few months? Do I have my partner take one out in her name? And if so can I transfer her points to my account?

    Thanks for any help.

    • Genghis says:

      With that kind of spend power I would churn as much as I do now but just spend more on each card. You can refer your partner to get points. Amex points cannot be pooled but can within certain schemes, e.g. Amex MR-> BAEC (can then be pooled in a HHA) or Amex MR->SPG (can be transferred between people that live at same address) etc.

    • I’m in a similar position and my strategy is now simplified to….
      All non GBP spend goes on Lloyds avios rewards due to zero currency fee.
      First 10k of GBP on BAPP to trigger 2-4-1 thenAll GBP spend to SPG amex, as with the Marriott merger each £90k spend gets you 90k SPG points which will convert to 270k Marriott points which in turn gets you a 7 night Marriott travel package AND 120k avios (or 162k avios if you buy the package when a bonus is running)

    • At those sort of levels, go for the biggest earning cards as the annual fees are chicken feed. Virgin Black, Emirates Elite, the new AA card for a Visa, HSBC World Elite.

      • Mr Dee says:

        The only problem I find is that at the high spends it can take some time to build up a credit limit high enough, this is when the Amex gold can be useful because realistically it is a pain to keep paying off the card mid month or daily and some make you wait for the transactions to post before you can spend more even if you are in credit ie MBNA.

        I like the virgin card and use it for Amex spend but unless your flying with them the transfer partners aren’t amazing with their rates

  4. Ralph says:

    What’s so amazing about all these interchange fees is that since the cap was introduced, as a taker of credit cards, the fees have actually gone up slightly and the 0.3% capped element is only a (fairly small) part of of the overall merchant fee we have to pay. I am not sure therefore that anyone is benefitting other than the card processing companies, since it isn’t the cardholders/consumers or the merchants.

    • Robin says:

      That was going to be my comment too Ralph!
      Look at this
      2.75% plus 20p ?!!

      • Robin says:

        so I don’t understand how they get away with it. Where’s the enforcement? if anyone could shed some light on this it would be appreciated!

      • For pay-in-person much better going for one of the newer companies – we’ve used iZettle given they have no dormancy fees (we’re low volume). Fees start at 2.75%, but once you hit £2,000 in card payments in a month the fee starts to drop, going down to 1.00% if you accept more than £40,000/mo – they work it out in arrears and refund the difference. Also accept all cards (incl Amex, JCB, Diners, China Pay, etc.). Others available but we’ve found them pretty decent and the app/card reader combo works well.

    • Mr Dee says:

      What’s amazing is it is supposed to help the consumer but it clearly isn’t. It’s like someone regulating how much a farmer can sell their items to help people afford food and then the supermarket not passing on the discount, of course this would never happen :/

  5. Lesley says:

    The reason why some traders do not accept Amex is more than the high fees. I offered it to a local pub in case they accepted it and they told me they would accept it except for the fact that they have to wait over 2 months for Amex to pay them the money – they said it takes too long and Amex are very difficult to deal with if there is a problem so they continue not accepting it..

    • If you use iZettle then amex fees are the same as visa/Mcard and deposits are within 2/3 days.
      For users over £40k a month it’s 1%

      • Robin says:

        Thank you Will. That’s interesting. Pay pal also have a similar sliding scale (and they are very easy to deal with) But for smaller players it requires that you hit those targets

      • Haha I just posted about iZettle in the comment above 🙂 Agree they’re a straightforward proposition.

        • We’ve just started using them with a view to cancelling our worldpay terminal, so far so good. WP charge us £18 a month terminal hire and 1.3% on Visa/MasterCard. Also in my experience an appalling company to deal with.

          PayPal is currently 1.4% for over £55k a month so iZettle seems to be very competitive on rates.

          • Sounds like a sensible move away from Worldpay! Funnily enough a few weeks after getting it I was out for lunch in London and the cafe brought over an iZettle terminal to pay, had a wee internal chuckle 😀

          • Axel heyst says:

            Try getting a quote from paymentsense as well if youre shopping around as a retailer

    • RIcatti says:

      Urban stories.. I think the said pub had the transaction in dispute and AMEX sided with the customer allowing full term to supply documents.

  6. The IHG card is now issued by Creation not Barclaycard. I was a heavy (£30k+) user of the old Barclaycard IHG card. I’ve desired to go for the Asda creation card however as for me a 1% rebate is preferable to the hotel value I had been realising, and with the wait until the anniversary for the free night I can’t double them up in the same way I used to.

    I used to work in merchant services, and I feel since the changes in interchange rates all it has done is fatten up the margins Merchant service providers make, most have reduced the rates (upon request from a retailer) however normally less than the actual reduction in interchange rate. Those that have felt the benefit the most are the largest retailers who are on a interchange + model where they have had the benefit of the full reduction.

    • I know that, but the Creation package is a perfect copy of the Barclaycard package.

      • Apart from the 12 month rather than spend-target-hit method of issuing voucher (which I actually prefer and has doubled the amount I spent with them!) – appreciate others preferred the previous Barclaycard version though!

    • Mr Dee says:

      Agree with the Asda card however I spend enough on the ihg to get up to spite status then switch to the Asda card because the points bonus is worth a bit if you weren’t ordinarily going to be able to achieve the status

      • Genghis says:

        I like the IHG card. Just over £50k on it this card year. I feel like now I’ve got SE it’s a bit of a waste spending on it but hey. New card year soon though so another £10k to aim for.

  7. I would spend bountifully on a BA card if it earned tier points at 20 / £1000 or better, so I could top-up the last hundred-ish points to Gold every year, without silly routings or hacks.

    For example, this year I flew with Qatar to Singapore in Business (rather than BA in PE) just for the 560 tier points. I’m sure BA would rather I travelled with them more – and spent money on the card!

  8. RussellH says:

    About half an hour after posting my first contribution to this thread at about this time last night I realised that there is one UK-specific point that I had omitted, and I have not spotted elswhere in this thread’s comments – section 75 co-liability of credit card issuers when things go wrong.

    My sister recently got a refund from a credit card firm of somewhere between £12 000 and £17 000 when the firm she had contracted to supply a new kitchen went bust. She had only actually paid £350 on the card, but the card company was liable for the lot. She will hardly be the only person to be claiming this sort of money from card companies, as well as those claiming smaller, but still significant amounts.

    Going back to my tour operating days, like everyone else in the business I had to protect client’s money paid in advance. Had I gone bust, my insurers would have re-imbursed my clients, but then claimed as much as they could back from client’s credit card issuers under section 75. I would be amazed to find that the ATOL scheme for flight-inclusive holidays does not do the same.

    Ineed, this, I believe, was one of the reasons why merchant acquirers often refused point blank to deal with travel businesses.

    The highly respected Simon Calder has said that while he pays for air tickets on BA, LH, EZY and FR, who he regards as financially secure, using a debit card, there are other (unnamed) airlines on whom he would only ever book using a credit card.

    Section 75 protection is, AFAIK, unique to the UK. I know that the card companies hate it, but they must also well realise that no government could get away with repealing it. The cost must be significant enough to make a serious dent in the funds available to pay for hotel point and airline miles.

  9. Mycity says:

    based on possible changes to the Amex cards, would I be wise to hang on to my BAPP card rather than churn it now? I’m just concerned if I cancel Amex may pull the 241 voucher before I churn in six months, or is it unlikely that anything will happen so quickly.

  10. Rahul says:

    To clarify – an AG’s opinion is not binding, but the Court of Justice usually follows its opinion. If the Court of Justice comes to the same conclusion for the same reasons, then that ECJ decision (whatever it is) is binding on the courts of England and Wales (till Brexit of course…)

  11. MaxMaxMax says:


    Question: Would either SPG or Amex get suspicious if a person has both the US and UK Amex SPG cards? My wife has the US card and I want to refer her to the UK one – obviously it’ll be two cards transferring points to the one SPG account.

    Would this be against T&Cs or get her points voided or something? Wouldnt want to risk it if so…

    • No, Amex is a global business and a selling point for them is that they will serve you across borders.

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