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.

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.

Why no-one wants high spending credit card customers any longer

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.

Why big spenders cannot get credit cards

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 hereour 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 hereour 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 hereour 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 hereour 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.)

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Comments

  1. James says:

    Hmm interesting. Guess they the card companies aren’t too keen in people chucking the best part of 100k in various tax payments via curve in that case?

    • I doubt Curve like big spenders, either. For each transaction, they receive interchange fees of 0.2%, and (if linked to a credit card) pay out 0.3% plus scheme charges (so maybe 0.4% total?).

      • the_real_a says:

        Curve MAKES money on the money back deals. They are part of an affiliate rebate scheme with the merchants paying back upto 8% into the network. That’s why you need to select from a list of retailers. Same affiliate scheme is used (but more generous money back to holders) with prepaid cards such as Pockit.

    • Graham Walsh says:

      That was exactly my thought. There was someone asking yesterday how to increase Curve limit beyond £100k. So either a very lavish lifestyle or large company bills (or both).

      • I’d love to know how to even get that, my Curve is at the 50k limit, and when asking for an increase their advice was to keep spending until it’s reviewed 🙄

        • Got mine increased to £100k a couple of weeks ago 😀

        • Richmond says:

          I was told exactly the same, the thing is, I hit the £50K limit quickly, so can’t spend more or more often. I also don’t want to waste my limit on pointless transactions I can do with other cards. I only use Curve for HMRC payments.

      • The Urbanite says:

        I’m approaching £100k spend on mine – to get the increase, just ask them. If they like how you are using the card they’ll increase it without question.

  2. Rooster says:

    The only cards are Amex charge cards for high spend, if you try putting a 100k in a month on a regular personal card you will struggle even with a high limit let alone what it looks like on your credit report (payments are often recorded).

  3. Fascinating stuff.

  4. I lived in the States and I recall it was against the credit card t&cs to put reimbursable business expenses through a personal credit card and if it was abused it could lead to the cancellation of the card and the loss of accrued benefits (points etc), I assume if my recollection is correct (which it may not be) that the UK is different and there’s no constraint on putting business expenses through a personal card?

    • I’d say it’s fairly common place to pay for expenses and then claim them back from your employer. It’s also fairly common to pay on a credit card. I’ve never heard of any issue with that, or having to pay cash for business expenses.

      I suspect that paying £20k of business expenses is less common, away from this site!

      • Lady London says:

        Many UK employers don’t issue company credit cards thus forcing the employee to use their own cash or credit and claim back. They all seem to refuse cash advances for major businesses expenses to employees as well. Amex and Citibank can really help fill this gap.

    • In theory there are, I think, linked to S75. You are basically getting insurance via S75 which you would not be entitled to on a business card.

      Card company also loses a pile as there is no interchange cap on corporate cards.

      Do I ever hear stories of people getting into trouble over this? No.

    • In practice, everyone I work with uses their pet credit card (usually airline Visa with eye watering earning rates) and reclaims. So regardless of the t&cs that is the reality.

      It isnt just the S75 risk that would make this unattractive to the card company though – it’s also an unquantified risk, because they’re now on the hook for my spend and potentially the risk of a the business going under and leaving me with unpaid business purchases…

    • the_real_a says:

      AMEX told me off for putting (albeit large) business expenses through my personal card. Their concern was that should my employer go bankrupt i would be personally liable for any debt…

      • lady London says:

        Interesting.

        And yet if you read the t’s and c’s of corporate cards issued to you by your employer, IIRC those t’s and c’s make you, personally, jointly liable to, say, Amex with your employer for amounts spent on the card. I haven’t checked one recently. But that was always in corporate card t’s and c’s when I checked before.

        I believe when Lehmann went bust, the employees still personally owed the money on their corporate cards that had been spent for business expenses and still had to pay the card company even though they could no longer claim from Lehmann.

        If I’ve got this wrong please update me.

  5. Jonny says:

    Interesting article. It probably also matters what kind of relationship you have with the issuer. Eg high five or six figure spend per month may not be frowned upon if you are an HSBC jade/private with the appropriate income/investments. Obviously would require a rethink for some in terms of earning different types of miles etc (and those where they don’t really have other financial products…)

  6. TigerTanaka says:

    If credit card companies do not want £20k a month going through their accounts, then the simple solution is to reduce the credit limit they offer. But then credit card companies love customers who have £20k balances and only pay the minimum amount every month. They can’t have it both ways.

    • Simon says:

      Even this wouldn’t stop people if they really wanted to spend. You just keep paying it off as you go along, allowing you to put a much higher spend per month than your credit limit. Works very well especially with Amex as a payment to your account frees up the available funds immediately. Not so good with Creation who take absolutely ages to apply the credit!

      • They can always create a new condition that you can only spend up to your credit limit per month. I heard this was the case with one CC issuer but can’t remember where I heard it.

      • Lady London says:

        Some cards do actually forbid you from spending more than your credit limit each month even ifyou are repaying it in the interim. I think that’s to stop money laundering (officially) and limit their liabilities (probably).

  7. john doe says:

    So other than trying to build market share, what is the economics in the virgin card, particularly the fee free card ? These are cards that are only 9 months on the market, and that were launched long after the new EU directive came into existence.

    Also, why are card companies so keen to keep existing customers when closing old cards, transitioning them to apparently loss making cards ?

    MBNA offered a 0.5% CB card to those they migrated from airline cards, No annual fee. Isn’t that roughly a 0.2% loss on all card spend ?. They don’t have a 0.5% card for new customers

    Lloyds ramped up their mastercard rewards for customers transitioning from the dual issue amex/mastercard to the single issue card. Yes they dropped the upgrade voucher, but they also removed the annual fee. They don’t have an avios earning card at all for new customers.

    Are they so keen to keep existing customers, that they are happy with a card profile for historic customers that can be loss making ?

    • Shoestring says:

      you’d have thought they would have disinvited loss-making or breakeven customers (assuming MBNA shared this information, of course)

      could just be that the head honcho at VM wants to guarantee he can turn round to his boss/ team after a month and say the launch has been a stonking success, we’ve already got 100,000 new customers…

      same as it was pretty obvious that one metric the Amex Brighton mgt got measured on was new sign-ups…ah, the good old days 🙂

      • Perhaps the plan is to start off loss-leading to get customers on board before adjusting the earning rate into something that isn’t. Many will not switch away. There is always the cross-sell-ability of other product that do make money in Virgin’s case also.

    • Andrew says:

      Depending on when you were migrated. I’m on the old scheme with 0.5% and no fee, but I get charged fx fees. The later migrations was 0.5%, no fee and fx free.

      Given that these were airline cards, it could be the holders travel regularly outside the UK and EEA. I’m not sure how the interchange fees are calcuated when a UK issued card is used in the USA.

  8. roberto says:

    O/T but credt card related..

    My Lloyds statement ran today. I got the double whammy of overseas spends on my old Lloyds Amex card and zero Avios showing on the statement. Apparently there is a problem in collating this months Avios so if you’re waiting for your Miles, you may have to wait a little longer.

    Lloyds do suck in a major way.

    • I’ve still not had anything from Lloyds to say my cards are changing. Is there anyone else still waiting?

      Still using the Amex and getting avios for it.

      • prune says:

        Still waiting as well

        • Not had the letter yet either. Cards still working under the old conditions.

          • Mikeact says:

            I’m assuming that as I’m near the end of the alphabet…..T……..they have a way to go before they reach me……meanwhile, back on the beach at 30℃, time for another beer, courtesy Lloyd’s Amex.

          • We’ve not received any letter yet. Surname is B so that theory is out @Mickact! We used it in the USA recently so still working ok.

  9. Slightly off-topic of course, but isn’t £10k+ per week rather rather a lot for a very small, private business to be spending on Google/Facebook ads?

    • Depends, really. For lots of small businesses, yes, but if you’re in a competitive industry where the cost per click/impression is high (but so is the margin for each purchase/new customer/whatever) it isn’t too difficult to rack up that level of spend.

    • A quick google says a UK small business has less than £25M turnover, and another quick google says spend 10% of revenue on marketing. So seems reasonable.

      • Google and FB will take 90% of ad spend for many businesses. £5m turnover spending £500k on marketing, mainly online, is not unrealistic.

  10. Stuart says:

    OT – IHG reward night

    My reward night from creation card has finally hit. I need a night in London towards the end of the year, any recommendations on which property to be looking at to get biggest bang for buck?

    • Craig says:

      I would say it depends on status, Crowne Plaza London The City gave me lounge access as Spire which added a fair bit of value. Quite a small lounge but a quite cleverly thought out offering.

    • stuart says:

      Spire status in the bag also.

    • Memesweeper says:

      I’ve done a night in the Kimpton and loved it. Got lucky with an upgrade too, beware some rooms are small. But I’d go back in a heartbeat…

    • I used mine at the IC Park Lane, just needed a bed for the night since attending an event in town. Didn’t use any of the facilities there, but room was nice and overlooking the park (Was told that I got upgraded).

      • Alex W says:

        Used mine at IC Park Lane also, it was terrible. A catalogue of errors. They’d “upgraded” me to a Hyde Park view, which was great except I specifically requested Green Park view. Ended up in a pokey room on the third floor. Waited for 2 hours for crib to arrive, an hour for a free coffee which we were charged for, etc. Very poor service for supposedly £400 per night.

    • stuart says:

      Thanks for all the comments – think I’ll just stick with the CP Kensington. I always get upgraded to a duplex suite when there, and it’s a nice enough location.

  11. Interesting article. Perhaps not an unreasonable concern if some are regularly putting large spends through a miles or hotel card such as Hilton Barclaycard. It could skew points needed for award nights upwards to the detriment of average spenders who are their target audience.

    But I still don’t fully understand why Amex are not giving us the same benefits as the US on those cards which aren’t capped? Four points per £ spend on travel may sway me to book on Amex website instead of going direct, four points per £ spent at restaurants would be a positive supplement surely to Shop Small?

    • I doubt the UK hilton card spending affects much. The US cards earn double the UK basic rate, and the paid card earns 5 times the UK rate when spending at Hiltons, and they get a free night per year.

    • I doubt it, as Barclaycard will be taking the hit, not Hilton.

    • TGLoyalty says:

      You are already getting the same deal on travel 1MR is worth 0.5 Avios in the USA

      So 4xMR in the USA for Travel booked direct is 2 Avios and we get 2MR = 2 Avios

      I still think it would be good to get more points from ongoing spend or a annual bonus like the Gold

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