Is this the end of credit card perks?

By Marianne Curphey

You may currently be enjoying cash back and other rewards when you use your credit card. Unfortunately, some of these rewards may become less generous, as a landmark EU ruling cuts the profit margins of some credit card providers, and providers seek to recoup the costs however they can.

In March 2015, experts told UK.CreditCards.Com that a new cap on interchange fees  -- the fees credit card providers charge merchants to process credit card payments -- could mean some card companies would start to scale back rewards in an attempt to recover some of their lost profits.

[For more on the interchange cap, see our March 2015 story Debate continues over what new fee cap means for you.]

Already, the ruling is having an effect. At least one major card issuer, Capital One, is reducing the perks available on its cards. The move comes just one month after the EU ruling.


Capital One has stopping issuing reward cards and, starting June 2015,
will significantly reduce cashback rewards available to existing customers.

"The implications of significantly lower interchange revenue has also meant Capital One has had to review its cashback and rewards products for existing customers, several of which are no longer sustainable under
current market conditions," said Capital One's public statement. "We will therefore, reluctantly, be removing or reducing the cashback on these unsustainable products."

Will other issuers follow suit?
Some experts say that Capital One is likely to be the first of a number of card issuers reviewing their business models thanks to the ruling, and that consumers may see rewards reduced or withdrawn in the future.

"Capital One may be the first, but I don't think it will be the last one to
scale back rewards," says Andrew Hagger, director of MoneyComms, a personal finance advice site.

He says he thinks Capital One, which is a standalone card provider, will be harder hit than the high street banks that are able to cross-subsidise and cross-sell their products.

"For Capital One, the bottom line is going to be affected, whereas card providers with banking divisions such as Barclaycard and Santander are still going to suffer a reduction in income but they have got their banking, mortgage and loans side which will cushion the blow somewhat," Haggar explains.

However, he believes other card providers will think of other ways to recover money lost through the interchange ruling.

"They might look at interest rate rises for new and existing customers, for example," he says. Other ways could include increasing fees on balance transfers or reducing the generosity of interest-free deals, he adds.

Take advantage while you can
"If you are getting cash back on your credit card then you are effectively sharing a piece of the credit card company's profits," says James Daley, a former editor of Which? and founder of the ratings website Fairer Finance. "You might as well take advantage of this while you can as the days may be numbered."

Wilma Allan, founder the Money Midwife, a personal finance blog, says the interchange fee cap and related changes should be a prompt to look at the deals you have with your current card and check that they are still competitive.

"It's good to review the options available, and see whether you are managing your money as efficiently as you can," she says. "This is particularly true if you know that a good deal is about to end."

Published: 24 April 2015