American Express loses its final appeal – it must cut its interchange fees to retailers who accept BA, SPG and Nectar cards

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

The decision means that the implicit interchange fee 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, for Visa and Mastercard products the interchange fee is the bulk of the fee charged to a retailer for accepting a payment card and represents the cut taken for the use of the Visa and Mastercard processing networks.  Other fees cover terminal rental and incidental costs involved in accepting cards.

We first wrote about this last July when the EU’s Advocate General published his guidance to the European Court of Justice.  He advised the ECJ to find against Amex, and yesterday the ECJ agreed.

You can read the European Court of Justice ruling here.

It doesn’t take a genius to realise that the free British Airways American Express is a dead duck long term with 0.3% implicit interchange fees, given that Amex will be paying BA something close to 1p per Avios for the points.  Interest income, terminal rental 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.

(NB.  Some of this article is taken from a piece I wrote at the time of publication of the draft legal opinion last July, which is why long-term readers may find parts of it sound familiar.)

BA Amex cropped


Let’s step back a bit.

In 2016, the EU capped the interchange fees charged by Visa and Mastercard at a maximum of 0.3% for personal credit cards and 0.2% for personal debit 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, an 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 implicit interchange fee (although no-one is clear how this should be calculated as part of Amex’s overall fees) capped at 0.3%.

This was 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 original Advocate General ruling admitted:

“[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.  This will presumably need to be set at a level similar to the total fees now charged to retailers for accepting Visa or Mastercard.

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.  I asked Amex for a statement yesterday and they said:

“We are currently reviewing the Court’s judgements.  We can, however, confirm that we have been preparing for this ruling and are committed to continuing to offer best-in-class products and services that deliver value for customers and co-brand partners. American Express Card Members can continue to use their cards as normal”.

In the short term nothing changes, because the existing contracts 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% implied interchange fees.

The Nectar Amex looks in trouble, given its low annual fee and 0.5% cashback rate.  The Starwood Amex will reach the end of its natural life next January when SPG and Marriott Rewards merges – it isn’t clear if Amex will continue with a card beyond that.

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 and on business Visa and Mastercards.  In theory shops will be allowed to refuse cards which charge higher fees 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

What happens next?

Good question.  In two weeks, I am speaking at a major Co-Brand Credit Cards conference in London where we will discussing these issues in more detail.  I will hopefully be able to bring you some more news – or at least speculation – after that.

You can read the full European Court of Justice judgement on the American Express co-brand interchange fee case here.

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  1. Slightly OT. I currently have Amex Gold Charge Card (AGCC). Here is my plan, just wanted to run it past the experts on here to see if I’m right.

    Upgrade to Amex Platinum. 20,000MR Points. Spend £1k. Cost £450.
    Refer partner to BAPP. 18,000MR Points. Cost £195.
    Partner spends £3k and receives 25,000 Avios.
    Refer partner to AGCC in June once her 6 months have expired (assuming offer is still on). 18,000MR Points.
    Partner spend £2k and receive 22,000MR Points.
    I may cancel Amex Platinum card for pro rata refund after this referral but not sure.

    In total for a total of £645, we will get 78,000MR points and 25,000 Avios not including the MR points and avios for the spend. If we continue with BAPP may also get a 241. I haven’t included any points for supplementary cards either or credit cards as don’t think I will bother for 5k points.

    Is this all correct or am I missing something? Thanks in advance

    • Genghis says:

      Seems reasonable. If referred for a BAPP you get 26k avios. Cash cost can be minimised by cancelling cards once no longer needed (as it seems you’re aware). Note that your AGCC is normally referred to as PRG

      • Thanks Genghis. Noted regarding PRG and 26k.

        • Graeme,
          Once you cancel plat, and she still has gold. Make sure she upgrades to,plat for a short while and gets 20k for a 1k spend. And if you need to be referred for any new cards get the referral from her, whilst it’s still,18k per referral. Just an additional angle. Good to be always spending towards a spend bonus.

    • I suggest that before you upgrade gold to plat you get the Gold companion card and get 5,000 MR for £500 spend and cancel before upgrading. Then get Platinum companion card after for same reward. And do same for partner.

      • rams1981 says:

        How does that work? You’d need to cancel the supplementary on gold prior to upgrading?

      • Where does this stated in Amex website that the main card holder will get 5000 MR once the supplementary card spend £500 or more?

      • Thanks Mark and Polly. I thought about the 5k for cards but think I will leave it out as keen to get platinum early in case the 18k bonus dissappears. good advice Polly regarding getting further referrals.

    • We’re intending to push it to the extreme this year, as it might be the last one where we can spin it.

      I have a Platinum card that I have no intention of cancelling, and in December my gal hadn’t had her own Amex account, so I referred her for PRG, +18k, we’ve just hit the spend target, so +24k, Plat upgrade just got approved, so in 2-3 weeks should be another +21k. Then she’s going to refer me for BAPP for +18k and cancel the plat, and +30.5k when I hit the bonus. Then I’m going to refer her for BAPP from my Plat, same drill. Throw in 2 SPGs while we’re on the 6 month cooldown on BAPP/PRG, and then throw in another PRG this year, might not manage another BAPP, but I’ve put together an excel spreadsheet, and assuming that they don’t pull the plug by rejecting our applications, we hope to end year with at least 244k points, but really anything above 170k would be just a nice to have.

    • Hi, I didn’t know you could refer people for the BAPP and get 18000 MR points if you have the platinum card? Where’s this detailed? I thought it was only similar branded cards you could refer?

      • If you send someone the referral link, they can chose any Amex card they want, except Basic Charge Card or the new Rewards credit cards.

        You’ll get 18k no matter which card they get, as long as they do it via your link.

        • Can a preferred reards gold charge card holder refer someone for the BAPP too?

        • You cannot choose which card to refer to, it’ll default to yours, but yes, the referee will be able to select BAPP.

  2. RussellH says:

    > There are no interchange fees to cap. Instead, it has to cap its general fee charged to
    > retailers. This will presumably need to be set at a level similar to the total fees now charged
    > to retailers for accepting Visa or Mastercard..

    Who decides if Amex’s fee is similar to the total fees now charged by Visa or Mastercard.? I would be surprised if in many cases these fees were not regarded as “commercially sensisitve”.
    If Tesco is able to negotiate an “interchange plus” agreement with Visa or M’Card, does this mean that Amex have to match that? Equally if your corner shop is being charged 1.8% by Visa or M’Card, then Amex is free to do the same there too?
    From what I read in Travel Trade Gazette, tour operators and travel agents have not seen any drop in their Visa or M’Card fees since the interchange cap came in – they are still being hit with fees of around 2%.
    Also, I doubt that Amex (or Visa or M’Card) makes anything out of terminal hire – when I started to accept Amex after years of Visa + M’Card transactions there was no change to the hire fee, just a software update to download. Terminal hire is no doubt a useful source of income for those hiring out the terminals, but I would guess that it has little to do with what the card companies get.

    • Don’t travel companies have to pay a higher rate because of higher risk of S75 claims?

      • RussellH says:

        The merchant acquirers do not quite put it like that, but I believe that you are correct.

        There are, of course, plenty of highly reputable companies who have been trading for years, but still have to pay punitive rates.
        It is not just travel companies – it is just that that was the sector I used to trade in. But what does seem to have happened is that the other charges levied have increased by the same amount as the interchange fee has been cut.
        The idea was that cutting interchange fees would cut merchant fees, but for small businesses and some sectors, it just has not happened.

    • Isn’t it the banks that charge the vendor a fee here?

      Interchange is a fee charged by visa/mcard to acquiring (customer) and merchant (vendor) banks for each transaction processed by their respective networks.

      Terminal hire, at least in NZ where I come from, is charged by the merchant bank.

      There is generally an agreement between the bank and visa /mcard outlining the maximum interchange charged for various merchants if the merchant has negotiated this with the bank, but the merchant/visa has no agreement with visa/mcard directly.

  3. OT Looking to book lhr to Dubai and Abu Dhabi to lhr in first with a 241. If I cancel my BA Amex, can I still change the flight to Dubai if first becomes available to Abu. Thanks

    • I’m pretty sure you keep the voucher even if you cancel the card, but am still unclear whether you can change a booking or have to cancel and re-book.

      I’m also keeping an eye out for Abu Dhabi in F – I have noticed that availability for Tuesday flights seems to appear first if that’s any help!

    • Are you using Rib’s recommendation on the right hand link…..baredemptionfindrr?
      Probably worth the monthly fee and so much better than any BA tool 😉

  4. A online payment gateway is still no different to a retailer terminal, so makes no difference if is online vs a shop

  5. If I paid Mas flight ticket via Amex will I get double point for £1 or only only particularly airlines?

  6. Jason Hindle says:

    Are there creative ways Amex could use to get around this? For example, providing MR instead of Avois, alongside a permanent offer of a better transfer rate (and automatic transfer plus an easy opt out facility), for users of BA cards?

    • It is VERY likely that BA has a ‘most favoured nation’ clause in its contract which forbids Amex from making any other card more attractive.

  7. O/T. Rob I currently have a BA Blue & very near £10k spend. I want to upgrade to BA Premium but was told (in an Amex chat) to apply for the BAPP in the normal way, online. However, I have also been told by a friend it’s better to phone and ask for the upgrade. Which is the correct route to upgrade? Thanks in advance.

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