There are very few businesses which actively try to discourage their customers from spending more, especially in the consumer field.
If you are running a B2B company, of course, you may be keen to diversify your income (an issue we had with HFP in the early years) so you are not reliant on a small number of large contracts. Most consumer facing companies, on the other hand, would love you to spend more.
With one exception ….. credit card companies.
Since interchange fees (roughly speaking, the fee that credit card companies can charge retailers) were capped at 0.3% on consumer credit cards, issuers of rewards credit cards have been on the back foot.
It is likely that the interchange revenue they are now receiving does not cover the cost of the rewards. There are other sources of income, of course (FX fees, interest, annual fees) but often not enough to make a difference.
This is a particular problem with fee based cards. Let’s take the two Virgin Money credit cards for example:
the free card (12,000 miles sign-up bonus until 30th June) earns 0.75 miles per £1
the £160 card (30,000 miles sign-up bonus until 30th June) earns 1.5 miles per £1
In this case, the additional miles you earn on Reward+ are partially funded by the £160 fee. This only holds to a certain level of spending, however. Beyond this the issuer can be on the hook very aggressively.
If you take the Virgin cards as an example …. if Virgin Money is paying Virgin Atlantic 0.8p per mile, which is conservative, then the £160 fee is eaten up in extra payments once you hit £20,000 of spending per year. In reality, because the annual fee is split between the airline and the issuer, the cut off point where the fee no longer covers the extra miles being bought is even lower.
A new sort of credit card customer has appeared in recent years, and many of them read HFP. You may not know that Google and Facebook advertising can be paid by credit card. There are many companies, often very small private ones, which are spending £2,000 to £10,000+ per week on online ads – and charging it all to a credit card. Great for the credit card holder, bad news for the issuer.
Your card account may be at risk!
I had lunch last week with two credit card consultants (yes, it’s a thing). One was someone I had known for a few years and the other was a colleague who had wanted to meet me. It was a fascinating session.
One story that came out is that one credit card issuer active in the loyalty space is looking at its legal options for closing down the accounts of heavy spenders.
Under fairness rules, you cannot simply close down a card account, irrespective of what the terms say. If bills are being paid and there is no deterioration of the underlying credit position of the cardholder, there is – apparently – not much you can do as an issuer, however much money you are losing in funding rewards.
(I know the name of this issuer but do not want to repeat it here, since it is clearly third party heresay.)
The other consultant was convinced that fee-based loyalty credit cards will eventually start to restrict rewards to the first £50,000 of annual spend. The sweet spot is less than that, but the limit has to be high enough not to put off too many people who would otherwise be profitable. This will be bad news for those HFP readers charging thousands of pounds of Google and Facebook ad spend each week.
Who does want your business?
The only card company which should be queueing up to accept high-roller business is American Express. Unbranded American Express cards (Green, Gold, Platinum, Centurion, Amex Rewards) are not subject to the interchange fee cap. They can still charge 1.5%+ to retailers.
And yet, and yet …. The Platinum Card has an exceptionally weak rewards scheme, earning just 1 Membership Rewards point per £1 despite the £575 fee.
Preferred Rewards Gold is better, as you get double points on airline transactions, double points on foreign currency transactions and 10,000 bonus points for spending £15,000 per year. It is still nowhere near as generous as the Virgin Flying Club Reward+ Mastercard (1.5 miles per £1, £160 fee) or the Lufthansa Miles & More Mastercard (1.25 miles per £1, £79 fee) for high spenders.
We still haven’t seen the full impact of the interchange fee caps due to the long-term contracts which were already in place. As these deals come up for renewal, expect earning caps on fee-based cards with high mileage rates, and potentially some more aggressive ‘points per £1’ deals from American Express to mop up the big spenders.
Learn more about the credit cards mentioned above
Here is the legally required interest rate information on the credit cards mentioned above, together with links to our detailed reviews:
American Express Preferred Rewards Gold – sign-up bonus of 10,000 Membership Rewards points when you spend £3,000 in three months – apply here – our American Express Gold review is here – representative APR 57.6% variable including fee (free in year 1) based on a notional £1200 credit limit, interest rate on purchases 22.9% variable
The Platinum Card from American Express – sign-up bonus of 30,000 Membership Rewards points when you spend £4,000 in three months – apply here – our American Express Platinum review is here – this is a charge card which must be repaid in full each month
Virgin Atlantic Reward Mastercard – sign-up bonus of 5,000 Virgin Flying Club miles after your first purchase (12,000 until 30th June) – apply here – our Virgin Atlantic Reward review is here – representative APR 22.9% variable
Virgin Atlantic Reward+ Mastercard – sign-up bonus of 15,000 Virgin Flying Club miles after your first purchase (30,000 until 30th June) – apply here – our Virgin Atlantic Reward+ review is here – representative APR 63.9% variable including fee based on a notional £1200 credit limit, interest rate on purchases 22.9% variable
Miles & More Global Traveller Diners Club and Mastercard – sign-up bonus of 5,000 Miles & More miles after your first purchase – apply here – our Miles & More Traveller review is here – this is a charge card and your balance must be cleared in full each month.
Disclaimer: Head for Points is a journalistic website. Nothing here should be construed as financial advice, and it is your own responsibility to ensure that any product is right for your circumstances. Recommendations are based primarily on the ability to earn miles and points and do not consider interest rates, service levels or any impact on your credit history. By recommending credit cards on this site, I am – technically – acting as a credit broker. Robert Burgess, trading as Head for Points, is regulated and authorised by the Financial Conduct Authority to act as a credit broker.
(Want to earn more miles and points from credit cards? Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)