As Credit Cards Interchange Cap Looms, Keep a Close Eye on Fees

By: MoneyFacts

The latest research by Moneyfacts.co.uk can reveal that credit card providers are anticipating the effects of the upcoming EU cap on interchange fees by taking a long, hard look at their credit card fees, rewards and interest rates.

On 9 December, credit and debit card processing fees, which are paid by a retailer’s bank to the cardholder’s bank for each purchase, will be capped at 0.30% and 0.20% respectively. The idea behind the change is that businesses will no longer have to pass excessive fees onto their customers.

However, the biggest concern with this new ruling is that credit card providers could remove lucrative reward deals and interest-free offerings, or even introduce or raise fees once the new cap is in place. This would be detrimental to consumers, especially as they are already paying sometimes hefty fees and interest rates for transactions such as cash withdrawals and purchases (see table below).

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“The enquiry into card processing fees has been going on for years, so this cap will be good news for retailers who pay excessive charges. However, there are real concerns that the drop in these fees will be passed on as a new cost to customers while valuable reward schemes will be scrapped.

“Since the EU consultation began this year we have seen Capital One remove its cashback rewards from its credit cards, while Tesco Bank, NatWest and RBS have changed or withdrawn their point schemes. As of next year, Santander will also be increasing its yearly fee on its 123 credit card, which means consumers will be paying £12 extra for no additional reward.

“While there is an abundance of interest-free deals on the market, customers can often end up paying more for their credit cards in other ways. For example, the average cash withdrawal fee has risen from 3.19% a year ago to 3.23% today, while the interest rate charged has increased to 25.89%, up from 25.15% in 2014. Standard purchase charges are also becoming more expensive on most credit cards: the average purchase APR, which includes card fees, has now risen to 21.5% APR, up from 20.7% APR a year ago.

“With an estimated £51.1 billion spent using cards* and contactless payments becoming more popular, it’s clear that consumers are embracing plastic over cash. However, with charges likely to increase, consumers really do need to keep in mind the importance of paying more than the minimum monthly repayment, or they could end up being burdened with a long-term debt.”

*Source: UK Card Association – Card Expenditure Statistics August 2015

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