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American Express loses its final appeal – it must cut its interchange fees

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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.

American Express Green card

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.


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 American Express card BAPP

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.

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.

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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Comments (121)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Dave says:

    Slight OT but relating to Amex Platinum cards. I’ve just upgraded to an Amex Platinum and have now got SPG Gold Status which has been matched across to Marriott so am Gold with them as well.
    Any idea how long my Marriott Gold status would last if I cancel to Platinum card later this year? I’m planning a trip next January involving a couple of Marriott hotels and it would be handy to still have the status. Can’t find an expiry date or virtual status card on my Marriott account so a bit in the dark. Thanks!

    • Scallder says:

      Hi Dave, If you look at your virtual SPG card that has the expiry date (defintely shows for me on the SPG app). Your Marriott status will be valid as long as your SPG status is so that should tell you.

      • Dave says:

        Great, thanks! I have checked my SPG card and it says valid until 02/28/2019 so I guess i’m good with Marriott Gold as well until then. I may of course keep the Platinum card anyway but am tempted to cancel and then reapply next year

    • Polly says:

      It should stay until the end of the year it is issued. If it has a longer expiry date eg 2 years then status lasts that long. It’s only the priority pass that stops the day you cancel your plat. Hotel boffins on here might know better…

  • Rob says:

    This won’t look after the end users, will just mean less cards available -> less competition amongst cards -> likely fewer benefits/higher charges for us.

    Save your socialist propaganda. At the end of the day, we consumers lose out as well as arguably the small businesses as I’m sure the cards providers will find alternative ways of charging them. Some may even withdraw services all-together.

    Although some parts of Brexit I hate (clamping down on immigration) there are reasons to be hopeful if done sensibly; this piece of legislation would be one of the first things I would scrap along with bonus caps, MiFID and AIFMD.

  • Jonny says:

    Amex application landing pages seem to be down for me this morning when I click through my own referral links – anyone else having difficulty?

  • JP says:

    Yes the referral page is down, the main application going direct seems ok. Do we think it is on purpose and a beginning of the end….

    • Peter K says:

      It wasn’t working the other day but by the evening it was fine. Just a bit glitchy it seems.

      • Jonny says:

        yeah seems to be fine now

        • JP says:

          It is ok now, but I expect the comments coming from Amex call centre are related to the EU case. As they lost I expect the changes will be coming soon….

  • Prins Polo says:

    There’s absolutely no way Amex is paying “close to 1p” per Avios with billings of a billion per month. I’d be surprised if it’s not closer to 1/10 of that.

    The free BA Amex earns 1p per mile but there are also other cards where the earning rates are, in theory, higher than the 0.3% interchange fee – like the free HSBC card with 0.5 Avios per pound spent.

    I’d think the Lloyds Amex with a nominal GBP 24 fee and 1.25 earning rate is probably even more expensive to its issuer than the free BA Amex.

    • WillPS says:

      The HSBC card is a ‘perk’ of having a massive salary or a huge investment paid in to HSBC. They will make a loss on the card in isolation.

      Presumably that’s also how NatWest justify their ‘Reward’ credit cards, but it wouldn’t surprise me if they get a cut sooner or later.

    • JP says:

      TSB give 1% on mastercard upto £500 a month, again a small lose leader to get you switching to the bank account. Look at the amount of money on offer for bank switching currently, if you never go overdrawn they are all loss leaders.

    • Rob says:

      Given that one of us is very well integrated with both American Express and Avios, and one of us isn’t, I think readers can make up their own mind whose opinion to trust on what Amex pays for an Avios 🙂

      NO-ONE pays much under 1p. I know a small partner who was paying 2p which is more than private individuals pay!

      Remember that Avios is a separate business to BA. When BA gives you 0.5p per Avios off a cash flight, Avios pays BA that 0.5p. Factor in all their overheads plus the £200m profit that Avios makes and you see why no-one pays much under 1p.

  • Steve says:

    Something slightly irrelevant. Gold card was settled on 30/8. Will I be fine (to get 20k signup points) if I apply on 1/3? – bearing in mind February has 28 days.

    • WillPS says:

      Ask on live chat and keep a copy of a transcript if they say ‘yes’.

    • Jonny says:

      Its “6 months” as opposed to a set number of dates – so should be fine. though agree worth double-checking.

  • Graeme says:

    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

      • Graeme says:

        Thanks Genghis. Noted regarding PRG and 26k.

        • Polly says:

          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.

    • mark2 says:

      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?

      • Kevin says:

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

      • Graeme says:

        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.

    • S says:

      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.

    • Steve says:

      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?

      • S says:

        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.

        • Steve says:

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

        • S says:

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

  • 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.

    • mark2 says:

      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.

    • Andrew says:

      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.

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