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Hey big spender …. we don’t want your credit card business

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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.

Why big spenders cannot get credit cards

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.

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Comments (147)

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

  • New Card says:
    17 Jun17 June 05:40

    Interesting… What are the fairness rules which you refer to? Are these the FCA’s rules?

  • guesswho2000 says:
    17 Jun17 June 05:55

    I was under the impression an issuer could close your account at any time, providing they give appropriate notice.

    Earning caps are big in Australia, many cards limit the amount of points you can earn each month and reduce the remainder (e.g. 1 QF point/$1 up to $5,000 per month, then 0.5/$1 after that, or similar) or even have a hard cap with zero points earned above $x spend.

    • New Card says:
      17 Jun17 June 06:07

      The suggestion that an issuer can’t close an account at will doesn’t hold true in reality – they just find another excuse. See eg aggressive shut downs of large spenders on very spurious grounds by American Express after a “financial review”.

    • Lady London says:
      17 Jun17 June 10:42

      Surely people would open a few more cards if they are reaching caps then?

      Btw it amazes me how much annual fee is for Alex Plat in Australia. It’s about 1500 dollars isnt it? I can’t see that package adding up .especially with the loss of dining credit on the Aussie Amex PP.

      I guess ‘status’ must be part of the value even in Oz then?

      • guesswho2000 says:
        17 Jun17 June 13:18

        It is, $1,450! You get Accor Plus membership ‘worth’ $395…also $200 travel credit, and access to Amex Platinum Reserve with no annual fee, which has $400 travel credit, so you can make it more palatable. I don’t have it, I’ve got a UK one since I use it primarily for insurance, but the annual fee creep is making that benefit less (although it’s still there).

        Before the devaluation, there were 4x flavours of Membership Rewards here, and Amex Plat was the only one which got you access to ‘Ascent Premium’. Which is basically Ascent with the ability to transfer to Qantas. The benefit of Ascent over the others has gone now though, as that used to offer 1:1 to airlines, vs 1:0.5/1:0.75.

        MR is still pretty generous though here, despite the bit hit it’s still 1-1.5 miles per dollar, it’s just that we were used to the higher earn rate!

  • Henry says:
    17 Jun17 June 06:04

    More than likely to be the premium virgin card that this article is about.

  • C F Frost says:
    17 Jun17 June 06:16

    My (albeit limited) understanding of all things to do with the interchange fee cap is that it is credit and debit cards that are affected. But charge cards are neither and I cannot see reference to them. Are they affected and, if not, could they grow in number?

    • New Card says:
      17 Jun17 June 06:25

      Not sure I understand the reference to the Lufthansa cards on this basis as I thought the MC is a prepaid and the Diners is a charge card, so a smart product combo in a 0.3% world if they are exempt from the cap?

      • Chrisasaurus says:
        17 Jun17 June 08:04

        With the Lufthansa involvement it will fall under the cap

    • Rob says:
      17 Jun17 June 08:09

      It is possible. More likely is a run of ‘business’ credit cards which fall outside the cap.

  • Waribai says:
    17 Jun17 June 06:34

    My wife has the Virgin premium card and got a letter asking for evidence of ID and source of income. We submitted both and haven’t heard anything since.

    • Waribai says:
      17 Jun17 June 06:36

      I forgot to add that they mentioned that if these were not supplied her account would be closed within 30 days….

    • Alan says:
      17 Jun17 June 08:15

      As an aside, my wife has a supplementary card in my IHG account and received a similar letter last week. I thought that was odd for a supplementary card holder.

      Unfortunately between us we don’t do enough “spend” to warrant 2 separate IHG card accounts.

      • Lady London says:
        17 Jun17 June 10:54

        I would have thought the card co bas no légitimité reason to do this since IT is thé main cardholder that is legally responsible for all spending on the card. M’y first answer to that would ne to telle thé supp cardholder not to reply. Instead i would write to thé card co state I am the main cardholder and therefore fully responsible for the card and its dupp, and ask the card co to srate why is my supp being contacted and what is their legitimate interest here which I will take care of dealing with.

        Its quite normal for a gentleman to provide a supp card to a lady he may not even be related to. The source of income of the lady, provided the bills are being paid and no money laundering appearance etc., is not a question that should be asked for a supp. Think how much embarrassment it could cause. The supp may be an innocent 18 year old and this could get very stressful. I have worked for people that have several such supps.

    • Lev441 says:
      17 Jun17 June 10:01

      I had this also from VM. They stopped/blocked my account and claimed they never received my paperwork/proof of income in the post three times. I put in a formal complaint and received compensation after escalating my complaint.

  • Mark says:
    17 Jun17 June 06:42

    I’d suggest if you are a high spender diversifying into a few of the points cards and running a weeks worth of spend on each card per month rather than putting it all through the one provider.
    Slightly more cost 2 it but if you are earning big amounts of points it doesn’t really matter.
    That way I doubt you’d get your account pulled.

    • Rooster says:
      17 Jun17 June 08:52

      If your a real high spender diversifying won’t be enough if your spend is 10x that of a regular person then it would still be high over multiple cards

  • Alastair France says:
    17 Jun17 June 06:47

    Pedant point… but I read the sentence twice about “heresay” reading it as “heresy” which made grammatical sense maybe but not “real” sense.

    Hearsay, however, would make sense and is I suspect what you actually meant. I don’t believe that “heresay” is considered as an alternative spelling.

    • Anna says:
      17 Jun17 June 07:29

      Indeed..as in you “hear” what someone has to “say”! Though we’ve all heard a lot of heresy from credit card companies recently 😂

    • Rob says:
      17 Jun17 June 08:07

      Agreed, will fix!

  • John says:
    17 Jun17 June 07:17

    Is Virgin Money a different company/provider to Virgin Atlantic Credit cards?

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