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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.

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. Jake Mc says:

    Rob – did the consultants mention anything about a tiered structure. I.e:

    Annual fee = £150 if card spend £20k
    Annual fee = £250 if card spend £40k etc

    Or have a reduced amount earned per mile over certain thresholds? Ie (first £20k earns 1.5 per £ whilst spend between £20-40k earns 1 per £)

    I think it would be a good way of keeping low spenders attracted to high earning rates whilst also keeping the high spenders on your card.

    • Not sure how charging customers to spend more would be an acceptable strategy. If they really want to they should just cap the rewards e.g. max 50K miles per year, several countries have cards which do this already.

      Actually, as Tesco has a cap on clubcard points per quarter, I believe there is an effective cap on the Tesco credit/debit cards.

      • Jake Mc says:

        Well on the basis the card companies own their own T&C isn’t anything acceptable? (so long as it meets UK reg which if they are upfront, it will).

        The question was more regarding whether these consultants thought that a tired structure would be win-win for high spenders meaning they still earned, not lost, money and high spenders got miles with no cap

      • Scallder says:

        I’m pretty sure the CC quarterly cap doesn’t apply to Tesco Bank earned CC points, however that may have been changed recently!

    • John Doe says:

      So I take out a credit card, and they charge me £150.
      I spend £20K, and then spend £1 on a couple of packets of chewing gum and they cost me £101 ??

      Yeah, that’ll go down really well.

      • the_real_a says:

        More likely separate cards (say white and black) each with a different annual fee and points earning ceiling.

        • Jake Mc says:

          Yes. That is probably the direction they will go if they do tier it.

      • Jake Mc says:

        That just sounds like you can’t manage your own finances in relation to the T&Cs you would have signed up to!

        And from a credit card provider point of view it would go down an absolute treat.

        The overall policy may work well if it enabled the card companies to continue to make money whilst also allowing high spenders to access miles with no cap. Having high spenders is a highly valuable commodity for issuers so I doubt they will want (if at all possible) to force them to migrate their attention to a different card.

  2. fivebobbill says:

    Hi guys, O/T sorry, but looking some accommodation advice.
    Four of us heading to Tel Aviv for a 5 night break first week in October, me and the missus, her sister and hubby, and I’m picking up the tab.
    Have been to Israel quite a few times, but none of the rest have, so plan is just a few sightseeing trips and the beach.
    Pretty flexible, happy to book Hotel, one or two apartments, whatever, so long as it’s nice, presentable, clean and near the beach.
    Have all the hotel loyalty levels via Amex Plat, but just looking at 2 rooms at the Hilton Tel Aviv (with lounge access) it’s going to cost me £3k-£4k for 5 nights!!
    Any suggestions would be very much appreciated.
    Many thanks

    • fivebobbill says:

      Forgot to add, with the Hilton double points promo that sort of spend would have brought me in circa 140,000 pts, which would have taken some of the sting out of it…. but it ends on 8th Sept 🙁

    • SimonW says:

      First week of October is Rosh Hashana, then Yom Kippur the week after. Bare that in mind in terms of cost (horrendous everywhere), and places being closed some days…..

      • fivebobbill says:

        Thanks Simon W, now you have me worried, never heard of Rosh Hashanah!!
        * Oh dear, quick search says Rosh Hashanah ends Tues 1st Oct, Yom Kippur begins Weds 9th.
        However we arrive 30th Sept to 5th Oct, so we seem to be falling between the two, can anyone enlighten me as to what sort of upheaval I might expect those 5 days, shops, tours etc…?

        • SimonW says:

          I’d expect most places to be closed on the 30th and 1st (certainly all Kosher restaurants and Government run attractions) and probably no public transport. Think New Years day ish in the UK. It is a happy time though, and I would try your best to find a synagogue to experience some part of the service there on RH. Blowing the shofar (rams horn) is a well known custom to experience. Beach will be busy I am sure, and nightlife never seems to stop in Tel Aviv for anything!

        • As SimonW mentioned things will be shut for those two days. RH actually starts on the 29th at Sunset, so places will close early to bring the Jewish New Year in. However, there will be places open as not all places are kosher. Certainly on the 2nd day of RH.

          As for hotels, I stayed at IC David, it’s quite far down the beach. Didn’t have access to the lounge as not IC Ambassador, only IHG Spire Elite. Thoroughly enjoyed it there, some great places to eat, things to do and see. Will head back again at some point, pleased that VS fly there too soon.

        • Charles Joseph says:

          Your main issue is the demand for travel to, and accommodation in, Israel at that time of year. Try and go a week or two earlier if you can. Sukkot is after Yom Kippur, so things won’t go back to normal until the end of October.

          • fivebobbill says:

            Have had 4 Business seats booked with Avios since March Charles, would actually have preferred September but couldn’t get suitable availability then, nothing at all now. I may have to consider a change, either to a much later date or a different country!
            Never thought for a second October would be a problem, that’s why I’m only looking for accommodation now… DOH!

          • Alex M says:

            Airbnb is the answer. Lool for apartments with lots of good reviews.

          • I would still go, you’ll have a great time.

    • Mr. AC says:

      Try the Crowne Plazas. There is one next to the beach / waterfront, and one next to a major train station (so a good base to to visit e.g. Jerusalem or other sites, also the airport). There’s a free shuttle running between the two. Both have lounges which you’ll probably have access to if you’re Platinum or above. The lounge in the CP City Center I’ve been to – the complimentary breakfast is excellent and puts to shame many airport lounges and even breakfasts you pay for.

    • Shoestring says:

      New ‘Visit Tel Aviv’ ad out, it got loaded to my HfP feed! Bloody Google ads. Quite fun, actually.
      https://youtu.be/5PAjhoH0NWU

    • fivebobbill says:

      Thanks for the feedback everyone, much appreciated, as always.
      Managed to find a very nice 2 bed penthouse apt, for a fifth of the price of the Hilton!!
      Will play it safe though and bring some bacon & bread for day one… 🙂
      Thanks again

  3. Sandgrounder says:

    I am surprised that issuers can’t just close accounts for whatever reason they wish. Banks & B/S certainly can, Nationwide shut my current sccount down for paying in too much cash, and as far as the Ombudsman was concerned, they could do as they liked.

    • Andrew says:

      How much was too much?

      Nationwide is still a Building Society, and their counters have never had a high cash turnover.

    • Lady London says:

      Did they think you were a drug dealer then?

      • Sandgrounder says:

        I passed 50k, that triggered a review. I think they just like to get rid of people who actually use the branches.

  4. OT… Does anyone know if you can clear a miles&more/dinersclub balance before the month ends and start again or do u have to wait for the direct debit to go through to get a zero balance again?

    • MardusManx says:

      Yes you can do a bank transfer. Sometimes takes a couple of days to show though and it will not alter your direct debit if that happens to leave around that time. Diners Club should be listed under “Payee Lookup” under most current accounts.

      You then use your account reference number (found top right of statement) as the payment reference.

      Although it isn not advertised if you ring the number on the back of the card they will confirm the sort code and account number just to be on the safe side.

    • I know people who have called and made a debit card payment.

      • The Lufthansa Mastercard from Diners Club is technically a prepaid debit card. Can it be used to pay the Diners Club bill?!

  5. Sam Collins says:

    Company Google Adwords spend pays for my family summer holiday flights via Membership Rewards & Avios. Glad to hear that’s not at risk…

  6. Jonathan says:

    Is there anything specific in the prominent card issuers T&C’s preventing you from legitimately using consumer credit cards for B2B transactions?

  7. Michael says:

    OT…I hold the Amex Platinum and will most likely hold it perpetually as I’m able to get a decent value from it. I’ve recently referred my wife for the Platinum (not supplementary card) and she’s now activated the sign-up bonus.

    We have no need for two Platinum cards so will either transfer her membership points or downgrade her to Gold/Green.

    If we downgraded to Gold do we:
    1) Receive a refund pro-rata for Platinum less the Gold annual fee? Assuming Gold only free in first year with direct application
    2) Are we eligible for the 10k points bonus for £15k spend?

    Many thanks in advance

    • Shoestring says:

      1 – yes pro rata refund on the Plat but liable immediately for the £140 on the Gold
      2 – yes

      So you might not want to downgrade – you could cancel the Plat and take out a new Gold card for your wife, giving her a free first year. She wouldn’t get a spend bonus but you could get a referral bonus

    • If you downgrade from Platinum to Gold, do you get the Gold charge card or credit card?

      • Shoestring says:

        you couldn’t downgrade from Plat charge to Gold credit

        but if you never had Gold charge before upgrading to Plat charge, pretty sure you wouldn’t be allowed to downgrade to Gold charge

        • Waddle says:

          I’ve never held the Gold charge but have been offered a downgrade to the Gold charge from Plat.

  8. Jason says:

    Does anyone know if Miles & More Mastercard/DC is planning to allow us having supplementary cardholders? We are in 2019…

  9. Heran says:

    “you cannot simply close down a card account”
    But you can transfer the account to a different type, like what Lloyds and MBNA have done?

    • Shoestring says:

      That’s not what happened IIRC.
      1. MBNA closed the a/cs.
      2. Virgin offered the ex-accountholders the chance to apply and (if successful) take out a Virgin credit card.

      ie a/cs didn’t continue, in any sense

      • TGLoyalty says:

        The old MBNA accounts continued as Horizon cards unless you closed your account

        • Mark2 says:

          Likewise Lloyds replaced the old Amex/MC combination with a new MC card with FX charges but no annual fee.

  10. Does this apply to the Amex credit cards (SPG, BA) in that they might cancel the card (hopefully not the entire account?!) if there’s a significant monthly spend?

  11. OT URGENT: IHG status match available, only 2500 Spire for UK and USA residents only. Details on LoyaltyLobby.

    • sorry, but who cares? IHG spire is nothing

      • Brian Webb says:

        Took me 2 mins to apply using Hilton Diamond Status. In the event that I, or one of my colleagues are staying one of the zillion IHG properties in the next year, it’s worth more points than I would have received……..for no effort.

        I think you’ll find your comment is worth a lot less than this status match 🤦🏼‍♂️🙄

        • I think you’ll find the match even worthless when you do expect some benefits at IHG properties, especially when you even took a few minutes for the match

    • Harry T says:

      Thanks, I applied.

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