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. Robbie says:

    Can I just confirm I can book an Iberia reward flight for a friend using my avios?

  2. Peter Taysum says:

    Completely OT

    Shell has stopped giving me bonus points through the app for “filling up” with petrol (was 100 points for either 15 or 20 litres). Is this “just me” or do they think it’s been long enough and we’ll just carry on?

    #fail on all counts; psychologists say it takes three months to form a new habit (not even close) plus we have HfP…

    • I have found over the last few years that if Shell forget to give me the 100 points a week offer on the app then I forget to use their garages. When my shell card doesn’t get swiped for a week or two the offer reappears soon enough. Don’t panic if shell is most convenient for you… but don’t get taken for granted!

      • Peter Taysum says:

        Yup, I’ve stopped going. Even emailed to ask if there’s a “problem” with the app. It’s only worthwhile with the bonus points, so I’ll wait and see if it comes back.


    • Andrew* says:

      Shell weren’t always good/speedy at posting the bonus – often coming a while after the points for the spend…

      My wife and I got the 100 pts for 5L offer recently – which we took up – and the bonus posted at the same time as the standard points..

      I like equidistant from a Shell and a Tesco garage so (fuel quality arguments aside) it’s fairly easy to determine whether a Shell offer is worthwhile (50 to 100 pts for 40 – 50 L is not worth it…)

  3. Amex Card can now be Added To Android Pay from Yesterday which Opens up lots more Shops to use Your American express Cards.

    • Genghis says:

      I may be missing something here but does the shop not still have to accept Amex?

      • Yep, same as Apple Pay – only difference is not needing to have as many cards in the wallet 🙂

      • No store does not have to accept amex take aldi as example does not accept amex but android pay works there .

        • Rob Walker says:

          Pretty sure that’s wrong..

          • @mkcol says:

            @Rob Walker – I think @LEE has answered the point in a backwards manner.

            What I think he means is ALDI does accept Android Pay irrespective of them accepting AMEX. However they still do not accept AMEX with physical card or via Android Pay.

        • Interesting – have you had any success elsewhere? The Amex Android Pay FAQ says “You can use Android Pay to make payments with your compatible Android device wherever American Express contactless payments are accepted. Just look for the contactless and/or Android Pay symbol at checkout.” Which implies it shouldn’t work if they don’t take Amex Contactless (& I’ve found some places take Amex normally but not contactless!).

          Potentially handy though – although the different banks/retailers seem vague about caps – £30 without further fingerprint/pattern authorisation but some say £100, some don’t say!

      • u can use at any store that accepts contactless payments .

        • Brian W says:

          Lee, if a store doesn’t accept Amex, like Aldi doesn’t, you can’t use Amex via Apple nor Andriod pay. It doesn’t work as per the terms and conditions Alan points out. I’ve tried.

          Sorry to burst your bubble. Would certainly be nice if it did work.

          • There is an Aldi on the top of my street and I can confirm they don’t take Amex via Apple Pay. It’s probably the only place I shop that’s doesn’t take Amex. For crying out loud even Poundland takes Amex

        • @mkcol says:

          Yes @LEE you can us Android Pay at any store which accepts contactless payment, but the point being made (which I think you’re getting confused about) is that ALDI do not accept AMEX payments whatsoever – whether with the physical card or via Android Pay. You can use other payment cards through Android Pay in ALDI.

    • Hehe was actually from earlier in the week, first broke in HfP comments on Thurs IIRC 😛

    • Rob Walker says:

      Android pay is interesting in relation to this article though. I assumed the reason Amex had developed their own version for android was to avoid the interchange fee cap. I would assume Google being in the mix would count as a 4th party. They support Apple Pay because they have no choice. Apple don’t allow third party NFC payment apps. So again I assumed they were just taking a hit on the fees with Apple Pay – presumably because they fear people ditching Amex for more convenient payment methods.

      • Genghis says:

        Any idea how payments actually work using Apple Pay / Android Pay? Ie how do they make money? Does the retailer pay the same if it’s a direct Amex or Apple Pay using Amex but Applie take a slice of the pie from Amex?

        • Interesting comments Rob (Walker) – agree with Genghis, would definitely be interested to know more re Android/Apple Pay. I understand the technical NFC/tokenisation bit but the charging would be very interesting to appreciate!

          • Rob Walker says:

            I know Apple negotiated a cut (at least in the US, not 100% sure about other countries.) When Google launched their version, it was reported that they weren’t taking a cut. Again that could be US centric information. Google or Apple are still involved though, so it makes you wonder if the cap will still apply. I think Barclaycard are still holding out with their own contactless apps and schemes. There must be some financial advantage for them I assume.

            From looking at my Father’s merchant account statement (Worldpay) he doesn’t get charged any differently for chip and pin vs contactless, although they are itemised separately. I don’t think there is any real difference between a contactless card transaction and a device based one. The device is just emulating a card.

            He is on a group wide deal negotiated on his behalf by the convenience store chain he’s part of. Around 0.4% for all cards. Except Amex – he refuses to sign up! It’s actually better for him to take cards now rather than cash. His bank charges 0.6% to pay in cash. Not to mention the risk of keeping it on the premises or being robbed on the way to the bank. Both having happened numerous times over the past 40 years.

          • Thanks for the info & totally agree re cards beating cash. Any idea how much Amex are trying to charge him?! 0.6% charge for cash is handy figure to know too.

          • Sundar says:

            IIRC, it is a percentage of the transaction discussed at the time of “enrolling” onto Android/Apple Pay.
            American-express branded cards are now on Android Pay(earlier could be used only on Amex Pay), though other-branded Amex cards are not yet till those brands sign-up.

          • Yes, the latter bit is what we’ve been discussing 😉 Don’t quite follow “percentage of the transaction discussed at the time of “enrolling” onto Android/Apple Pay” though?

          • Rob Walker says:

            I don’t think Amex have been given the chance to try and charge him anything for about 20 years 🙂 He’s never asked and as far as I know they haven’t solicited for the business. He sees it as an unnecessary extra expense, and given the nature of his business, I think he’s probably right. It’s a semi-rural convenience store. Not accepting Amex Isn’t going to cost him any business.

            I recently did some business with a small local carpet shop, and said when paying – “I don’t suppose you want an Amex card as payment?” They said they didn’t take it, and that Amex wanted 4% from them. As the owner said, 4% of revenue is an awful lot of profit for most businesses.

            When my parents took over a (non convenience store) business about 18 years ago, the previous owners were paying Barclays around 5% for all credit cards. My dad was an!e to secure 0.99% from HSBC because of his existing relationship. Obviously things are different now, but small businesses are still routinely rinsed for whatever the banks can get. There are probably still a huge number of small businesses paying 4% for visa and MasterCard.

  4. everyone complaining about Aldi/Amex…..and there was me believing Rob’s readership was the aspirational HNW variety 😉

    • the real harry1 says:

      I guess he would make the point that the HNWIs wouldn’t waste their time commenting

      I’ve never used Aldi FWIW

      but they are opening an Aldi Wadebridge soon so I guess I will, sometime soon

      I think you’ll find tight people good with their money are also Aldi/ Lidl shoppers

    • Rob Walker says:

      We have a household income of about £85-90k and live in West Yorkshire (i.e. not London). We shop in Aldi almost exclusively. The quality is excellent and you’d be surprised at the number of range rovers parked outside on a Sunday afternoon. Our C4 Picasso sometimes looks out of place 🙂

  5. I read everywhere about the cost to retailers of accepting cards. I never see a comparison with accepting cash.

    The banks do charge retailers for paying cash in, then in the business it has additional but hidden costs in the form of reconciliation and security requirements, both on premises and in transit.

  6. I can offer a bit of insight on these charges. The rates for Visa / Mastercard and Amex depend on the size and type of your business and card turnover. I run a restaurant turning over approx GBP1 million. Worldpay charge us 0.85% to process Visa / Mastercard if the card is a personal card. Corporate VISA / Mastercard are much more expensive at around 1.8%. Amex charge 1.98% on all transactions. Therefore its not hard to see how they finance the higher points earn. I’m fairly confident that these are very close to the lowest rates available for an independent business of our scale.

    The cost of processing cash has been mentioned. The bank charge 0.6% to pay in cash but you have all the hassles of counting it, getting it to the branch and security issues. Give me card payment every time despite the slightly high fee.

    I did once try putting a transaction though the business on my BA AMEX (needed to trigger the 2for1 voucher). This seemed to set off major alarm bells in AMEX HQ and I had phone calls, letters and a card block for some time. Therefore not recommended!

    • Talay says:

      You need to get off WorldPay and onto (probably) Elavon or First Data.

      Debit cards circa 0.34% and credit circa 0.6%.

      If you’re doing £1m with a prospective 80% cards and 75% of those being debit then you prospective savings on debit cards alone are:

      £1m x 80% x 75% x (0.85% – 0.6%) = £1500.

      Please send my commission to The British Legion

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