You are here: Home - Credit Cards & Loans - News -

The death of credit card rewards?

Written by:
Credit card holders stand to lose benefits and rewards such as cashback and free air miles they receive for card usage due to legislation passed last month by the European Parliament.

As reported by Your Money last month, as of October the fees retailers can be charged for processing payments will be capped in all EU member states. Under the new rules, card issuers will only be able to charge shops a maximum transaction fee of 0.3 per cent for credit card payments, and 0.2 per cent for debit card payments.

While theoretically designed to deliver savings to consumers, it is believed that the cap will mean credit card providers could be forced to scrap customer perks. In the UK shops pay an average of 9 pence each time a customer pays via debit card – credit card payments incur a higher fee, as much as 0.7 per cent of purchase price. While some of this cost was passed onto the customer directly (whether add to the bill as an additional charge, or factored into prices), credit card providers also used this revenue to fund reward provisions.

Capital One is the first provider to publicly confirm that the new rules will mean an end to its reward programmes. In a statement issued this week, the company has said that its reward cards – which paid customers 5 pence for every £1 they spent – are “no longer sustainable”; the cards have now been removed from sale, and as of June 1 existing customers will not receive cashback on most transactions. Capital One claims that the overall loss to the credit card industry resulting from the changes could be as high as £2.4bn.

Many of the world’s largest credit card providers – including American Express, Barclays and Santander – have introduced initiatives allowing account holders to tot up free flights, travel insurance, money back and other rewards, and attracted sizeable volumes of new customers as a result. However, Kevin Mountford of Moneysupermarket believes such schemes have now reached their expiry date – and won’t be renewed.

“This is a classic case of regulators trying to act with the consumer in mind, only for the policy to come back to bite the very people it was supposed to help,” Mountford said in an interview with The Telegraph. “All loyalty programmes are now at risk.”

“All it takes is for one provider to start the ball rolling before others do the same,” Mountford continues. “Providers will be looking for ways to recoup their costs and one of the ways to do this is to withdraw reward schemes or interest-free offers.”

Nevertheless, James Daley of Fairer Finance welcomed the news, stating “there are more people getting a bad deal on credit cards than there are people getting good ones.”

“The end of cashback schemes will be upsetting for those making a few hundred pounds every year, but supermarkets and other retailers who compete strongly on prices should be able to pass the savings back to consumers.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Blog: PPI – the toxic smell that won’t go away

Yesterday, the Financial Conduct Authority (FCA) fined Clydesdale Bank a record £20.7m for mishandling over 100,000 PPI complaints. James Daley...