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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.

  • TigerTanaka says:
    17 Jun17 June 09:45

    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:
      17 Jun17 June 10:14

      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!

      • John says:
        17 Jun17 June 11:48

        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:
        17 Jun17 June 15:54

        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).

  • john doe says:
    17 Jun17 June 10:13

    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:
      17 Jun17 June 10:25

      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 🙂

      • john says:
        17 Jun17 June 15:12

        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:
      17 Jun17 June 10:53

      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.

  • roberto says:
    17 Jun17 June 10:31

    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.

    • Matt says:
      17 Jun17 June 11:03

      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:
        17 Jun17 June 11:16

        Still waiting as well

        • Anna says:
          17 Jun17 June 11:54

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

          • Mikeact says:
            17 Jun17 June 13:03

            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.

          • Liz says:
            17 Jun17 June 17:45

            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.

  • Adam says:
    17 Jun17 June 10:33

    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?

    • Liam says:
      17 Jun17 June 10:44

      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.

    • John says:
      17 Jun17 June 11:54

      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.

      • Rob says:
        17 Jun17 June 12:08

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

  • Stuart says:
    17 Jun17 June 10:49

    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:
      17 Jun17 June 11:02

      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.

      • Rooster says:
        17 Jun17 June 12:53

        Yes lounge for spire and good service in the lounge as well

    • stuart says:
      17 Jun17 June 11:03

      Spire status in the bag also.

    • Memesweeper says:
      17 Jun17 June 12:15

      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…

    • Graham Walsh says:
      17 Jun17 June 15:02

      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:
        17 Jun17 June 15:56

        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:
      17 Jun17 June 16:23

      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.

  • Russ says:
    17 Jun17 June 11:57

    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?

    • John says:
      17 Jun17 June 12:13

      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.

    • guesswho2000 says:
      17 Jun17 June 13:33

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

    • TGLoyalty says:
      17 Jun17 June 17:47

      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

  • Jake Mc says:
    17 Jun17 June 11:59

    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.

    • John says:
      17 Jun17 June 12:08

      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:
        17 Jun17 June 12:13

        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:
        17 Jun17 June 15:17

        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:
      17 Jun17 June 13:01

      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:
        17 Jun17 June 14:46

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

        • Jake Mc says:
          17 Jun17 June 14:56

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

      • Jake Mc says:
        17 Jun17 June 14:52

        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.

  • fivebobbill says:
    17 Jun17 June 12:20

    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:
      17 Jun17 June 12:27

      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:
      17 Jun17 June 13:02

      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:
        17 Jun17 June 13:39

        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:
          17 Jun17 June 13:55

          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!

        • Graham Walsh says:
          17 Jun17 June 14:56

          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:
          17 Jun17 June 17:10

          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:
            17 Jun17 June 17:23

            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:
            17 Jun17 June 17:27

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

          • Graham Walsh says:
            17 Jun17 June 23:26

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

    • Mr. AC says:
      17 Jun17 June 14:06

      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:
      17 Jun17 June 19:59

      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:
      17 Jun17 June 20:16

      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

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