Major blow to the BA Amex as FCA imposes 0.3% interchange fee cap

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The Payment Systems Regulator, an arm of the Financial Conduct Authority, yesterday issued its final view on whether the British Airways American Express cards, amongst others, are already caught by the new 0.3% cap on credit card interchange fees. The answer, it seems, is yes.

In simple terms, the original plan was this:

So-called ‘four party card schemes’, where an intermediary – ie Visa or MasterCard – sits between the retailer and the card issuer were to face a 0.3% cap on interchange fees

British Airways BA American Express Amex credit cards

So-called ‘three party card schemes’, where there is no intermediary – ie American Express – would be permanently exempt, except …..

So-called ‘three party card schemes’ where the card is co-branded (eg the BA Amex, SPG Amex) or issued by another party under licence (eg the Lloyds Avios Amex) would be exempt until late 2018

There was a fly in the ointment. In the third scenario above, the transitional exemption only applied if American Express could show that it had a UK market share of under 3%. It has failed to do so.

As this guidance issued yesterday confirms, American Express must set an interchange fee on its co-branded and licensed cards of no more than 0.3% until March 2017. Should its market share drop below 3%, the position will be reassessed from March 2017 – although the exemption will end, regardless, in December 2018.

The bottom line is that American Express will see a substantial reduction in the income it receives from retailers when you pay with a co-branded or licensed Amex card.

What will change?

In the short term, nothing. American Express has a contract to operate the British Airways card and will presumably continue to do so under the agreed terms unless there are suitable break clauses in place. The contract was only renewed in the last 18 months or so.

It is noticeable that the credit card reward schemes to cut their benefits so far are generally those NOT operating under a third party licence. I am thinking of HSBC Premier, Tesco Clubcard Mastercard and NatWest with Your Points. None of these schemes involves a third-party branding partner.

The only co-branded cards I can think off which have cut their benefits are the House of Fraser card, the Debenhams card (both issued by the same group) and Capital One Vauxhall card, which was closed entirely.

Once these co-brand contracts come up for renegotiation, of course, you can be fairly sure that there will be some major changes in the benefits offered. These are likely to involve lower rewards for your day-to-day spending but improved benefits such as status perks, 241 vouchers etc.

One thing remains clear. The big travel brands want to keep their logos in your wallet and the card issuers want to keep the (generally affluent) group of people who hold airline and hotel credit cards. Exactly how this will be done will unfold over the next couple of years.

The end result may not be entirely bad. In the USA, for example, IHG Rewards Club has a $49 annual fee credit card which gives you a free night every year – with no need to spend anything! That would be a hugely attractive product if it was launched here even if the earning rate on the card was lower than we see now.

The other outcome is that American Express is likely to put huge marketing efforts behind Preferred Rewards Gold and Platinum. These cards remain permanently exempt from the interchange fee caps and will be considerably more lucrative for the company going forward – and Amex will be heavily motivated to create a benefits package which attracts and retains customers.

Want to earn more points from credit cards? – December 2021 update

If you are looking to apply for a new credit or charge card, here are our November 2021 recommendations based on the current sign-up bonus.

You can see our full directory of all UK cards which earn airline or hotel points here. Here are the top current deals:

British Airways BA Amex American Express card

British Airways American Express

5,000 Avios for signing up, no annual fee and an Economy 2-4-1 voucher for spending ….. Read our full review

British Airways BA Premium Plus American Express Amex credit card

British Airways American Express Premium Plus

25,000 Avios and the UK’s most valuable credit card perk – the 2-4-1 companion voucher Read our full review

American Express Preferred Rewards Gold

Your best beginner’s card – 20,000 points, FREE for a year & two airport lounge passes Read our full review

The Platinum Card from American Express

30,000 points and an unbeatable set of travel benefits – for a fee Read our full review

Earning miles and points from small business cards

If you are a sole trader or run a small company, you may also want to check out these offers.

American Express Business Gold

20,000 points sign-up bonus and free for a year Read our full review

American Express Business Platinum

40,000 points sign-up bonus and a long list of travel benefits Read our full review

British Airways Accelerating Business American Express

30,000 Avios sign-up bonus – plus annual bonuses of up to 30,000 Avios Read our full review

Capital On Tap Business Rewards Visa

The most generous Avios Visa or Mastercard for a limited company Read our full review

For a non-American Express option, we also recommend the Barclaycard Select Cashback card for sole traders and small businesses. It is FREE and you receive 1% cashback on your spending: