Capital One have announced they are cutting the cashback rewards they offer to holders of their credit cards from 1st June. This is a result of the cap on interchange fees being introduced across Europe.
Whenever a customer spends money using a credit card, the merchant they’re buying from pays a credit card processing fee which includes a so-called interchange fee which is set by Visa or MasterCard. This interchange fee is paid to the card issuer who, in the case of cashback cards, passes on some of this amount back to the customer in the form of cashback rewards.
Interchange fees have traditionally been as high as 1.5% which meant issuers had plenty of room to offer rewards back to cardholders. The new cap is limiting the interchange fee for consumer credit cards to just 0.3%. This gives issuers such as Capital One much less income to split with consumers, so Capital One’s announcement is no surprise to the industry. It’s likely that other issuers of cashback and reward cards will announce similar cuts to their rewards soon.
If you have a cashback credit card, now’s a good time to make the most of it before your rewards are taken away!
The good side of all this is that retail businesses should now be able to pay less to process card transactions. And competition between businesses should mean this translates to lower prices for consumers.
But businesses are unlikely to enjoy reduced fees automatically. Instead they should be asking their processing providers for better deals.
Do you run a business? If so, you can use PaymentBrain to compare card processing providers and find out what card processing rates you should be paying.