The death of credit card rewards?
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.”