A new ruling by the EU, which will come into effect in October, is causing credit card providers to reduce and cut the benefits they offer with their card, as there is a limit to the amount they can allow for cashback.
In return for being allowed to accept payments by card, retailers must pay card providers. However, the EU will be introducing a cap on the amount retailers pay their providers. This cost is called an interchange rate, and previously the average rate companies charged retailers was 0.7 per cent. However, the cap will restrict this to 0.3 per cent, eating into credit card providers’ profits rather considerably.
In order to deal with this impending reduction in profits, credit card companies are therefore looking to restrict their reward schemes on offer. This is because these rewards generally attract the least profitable customers in, and those who earn rewards are more likely to repay the balance by the end of the month, which means the card provider makes little money.
Capital One and Sainsbury’s are cutting the rewards that they offer, whilst Lloyds, M&S, Santander and Tesco Bank have all said they will be reviewing their own rewards system. American Express is unaffected as it negotiates its fees independently.
Kevin Mountford, of Moneysupermarket.com, said: “The move to cap the interchange fees charged by banks to handle card transactions will undoubtedly have a knock-on effect on the credit card industry. It is possible we will see a reduction in the rewards offered by card providers, as well as an impact on promotional zero-interest offers.”
