The popular British Airways American Express (Amex) credit card is among those which could disappear from the UK market after the European Court of Justice (ECJ) this week issued a ruling against the card provider.
American Express has lost an appeal, which means it will now be limited in the amount it can charge retailers that accept Amex payments made using some of its cards.
Rob Burgess of credit card rewards comparison site Head for Points says this means popular Amex cards from British Airways and Nectar will “almost certainly cease to exist” in their current form.
American Express says it is reviewing the judgement before deciding its next step.
Under EU rules that took force in October 2015, credit card transactions which involve four parties - the cardholder, retailer, card provider (such as Mastercard or Visa) and the issuing bank (such as Lloyds Bank or NatWest) – have limits on the level of so called ‘interchange fees’ that can be charged to retailers by the card companies.
This means retailers cannot be charged more than 0.3% of the transaction value if the customer choses to pay with a personal credit card. The cap resulted in numerous rewards and cashback card providers withdrawing or scaling back their offerings.
However, these rules do not apply to cards where there are three parties involved in the transaction, such as those offered directly by American Express. This is because Amex acts as both the card provider and issuing bank. In practice, this means it can charge higher fees to retailers and subsequently give cardholders better rewards.
But this week’s European-wide ruling has judged that in cases when a card is co-branded, such as with an airline, this counts as a fourth party and thus fees charged to retailers must be capped. This is likely to mean the generous rewards offered by these cards will become financially unsustainable.
Is my Amex card affected?
Similarly, those offered by Harrods and the Starwood hotels group will also fall foul of this ruling.
Rob Burgess of Head for Points told Moneywise that this ruling is likely to force American Express to make changes to its rewards products.
“The ECJ ruling means that the current American Express co-brand cards (primarily the British Airways credit cards but also the Starwood hotels, Nectar, Harrods and Costco cards) will almost certainly cease to exist in their current form once the existing contracts end,” he says.
“The bottom line is that airlines tend to charge around 1p per mile to their co-brand partners and that is simply unaffordable in the world of capped merchant fees.”
Amex cards issued by banks, such as Lloyds Bank Amex Avios Rewards Credit Card, will not be affected as these are already defined as four party cards and subject to fee caps.
In a statement issued to Moneywise, American Express says cardholders should continue to use their cards as normal.
It says: “We are currently reviewing the court’s judgements. We can, however, confirm that we have been preparing for this ruling and are committed to continuing to offer best-in-class products and services that deliver value for customers and co-brand partners.
“American Express card members can continue to use their cards as normal.”
Mr Burgess suggests Amex could look to make its cards which aren’t co-branded more attractive. Alternatively, airlines could start to run these cards as loss-leaders to keep customers loyal to their brands.
“The real benefit to the airlines is keeping their brand 'front of mind' whenever you open your wallet. This is very valuable,” he argues.
“Airlines should be willing to run their co-brand cards at a break even, or even at a small loss, because they give brand exposure which would cost a huge sum to obtain through traditional advertising.
“Otherwise airlines could focus more on soft benefits rather than issuing miles, such as offering airport lounge passes to cardholders. These benefits have no direct cost to the airline but would encourage people to hold their credit card even if the mileage earning was reduced.”