Is this the end of cashback credit cards?

14 April 2015

credit cardA new cap on the fees that credit card companies charge retailers is about to hit card payments in the UK. But while the jury is out on whether this will end up being a good or a bad thing for consumers, one immediate effect is that cashback credit cards are already being withdrawn in anticipation of the change- a trend that looks set to continue..

European Union regulations, first mooted back in July 2013, which will be introduced later this month, will limit the 'interchange fees' that credit card companies can charge retailers for accepting card payments, reducing them to a maximum 0.2% for debit cards and 0.3% at most for credit cards.

According to the European Commission, the changes will create “a more competitive system” that is more transparent and that will encourage technological innovation and investment in new payment options. However Visa Europe do not agree with the EU, claiming that the regulations will lead to less convenience, less innovation owing to reduced cost recovery and will actually cost consumers more as card issuers will start charging higher annual card fees.

Cash back credit cards are currently very popular, as they provide regular payments in the form of a percentage of your overall spending back as credit paid to your card; they are the most searched-for type of credit card according to Which!!! Money. However, in light of the new rules, Capital One has issued a statement saying it will stop offering cash back credit cards to new customers. The company will also scrap or reduce the earnings on its cash back deals for existing customers from 1 June.

The alternative for Capital One, and other card issuers contemplating the interchange fees issue, is to start charging a higher annual fee for the use of a cashback card. However, this could leave consumers looking at a card which will cost more in annual fees than it earns in cashback, particularly if cashback rates fall. Good job EU.

Of course, credit card companies are at their liberty to remove cashback incentives at any time, although most companies, including American Express, Barclays, NatWest and RBS, would need to provide 30 days' in notice in writing before doing so.

The European Commission reckon that interchange fees currently bring in an estimated £6.5 billion a year for credit card companies, who are going to be understandably peeved at having their lucrative revenue streams cut. As a result, is it any wonder some cards are being withdrawn?

TOPICS:   World News   Credit Cards   Government


  • Patrick
    I can't really see an issue with this. It'll be good for retailers to have reduced credit card charges as it'll reduce their costs which they'll pass on to us if they have enough competition. Credit card companies will still continue to make plenty of profit through excessive charges, selling customer data along with picking on the financially vulnerable and hitting them with high interest charges!
  • David
    I am in the fortunate position to be debt free, have a decent income and importantly the willingness to avoid debt especially high interest rate charges. I have had a capitol one cash back card for 8 years and have never paid interest. I have spent a great deal of money through the card and C 1 has undoubtably made a great deal of money through charges to retailers as a result. Now, as a result of greed, fuelled by greed, the card will give me nothing whilst still making money through retailer charges and high interest rates to those stupid enough or with an inability to leave an outstanding balance. The buyers will not benefit from the removal of cash back. They will not benefit from reduced retailer charges. Time to go to a different card provider.

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