So now everyone’s a payment expert!

Last week I received a letter from Capital One regarding my cashback credit card. The letter indicated I would no longer receive cashback on my card; something of a disappointment as it was worth a few hundred pounds last year. The explanation of the change read “Changes in our industry mean it is no longer sustainable for us to offer cutback on your card. This is because the fees we receive when you use your card are reducing”. Seems fair enough; Capital One are earning less money so something has to give and it’s my cashback!

However, heading over to the EU website things start to become a little clearer; “The European Commission welcomes the adoption by the European Parliament of a Regulation capping interchange fees for payments using consumer debit and credit cards and improving competition for all card payments.”

In fact I was aware this EU proposal had been under discussion for a couple of years and we can now see one result of this market intervention. The intention is apparently to encourage merchant adoption of card payments and reduce the prices merchants charge consumers but my cynical side questions how well this will work in practice!

  • Am I really going to pay less in stores or will those stores keep their savings?
  • How can the EU possibly know the correct rate for interchange?
  • How does cutting card margins help banks offer attractive and competitive products in the market?
  • How long until banks impose annual fees on most credit cards?

As an aside, apparently the change still requires formal approval by the Council of the EU but Capital One clearly thinks it’s inevitable.

Most American Express cards fall outside the terms of the cap as they don’t use interchange fees. Here’s hoping the cashback on my Amex card survives!