Capital One Reduces Cashback Reward Scheme


April 2015

Capital One Reduces Cashback Reward Scheme

Capital One have announced their decision to slash the reward scheme they offer on their products. They say it is a response to the decision by the European Parliament to implement a cap on ìinterchange feesî. Capital One are one of the biggest suppliers of credit cards with a cashback facility.

The ìinterchange feesî they refer to are the costs paid for by retailers to the issuers of the credit or debit card when a payment is processed. The European Parliament implemented the ruling after the European Commission released data showing the fees were costing £6.5 billion per annum for the retailers.

The European Commission went on to show that the fees were reaching up to 1.5% for each transaction. The new ruling will mean they can only reach 0.3% for credit card payments and 0.2% for debit transactions.

There are many experts that have long criticised ìinterchange feesî arguing that they are preventing progress within the industry and the adoption of innovative technology such as contactless mobile phone transactions. They argue that change is needed immediately because substitute payment methods are already being implemented such as Apple Pay and Paypal. In order to prevent their takeover, the credit card industry will have to adapt soon.

However, there are others within the industry that believe the introduction of these limits will mean credit card companies will end up introducing new methods to make back the revenue they will lose.

Capital One wrote to their customers saying ìfollowing the European Parliamentís resolutionÖthe implications of significantly lower interchange revenue has meantÖseveral [products] are no longer sustainable under current market conditions.î They went on to inform the public that the alterations they are going to implement will influence both new and existing customers.

The customer Greg Welch has possessed the ìAspire Worldî credit card with Capital One for five years, which gives out 1% in cashback. He uses it to purchase most things, including ìÖbuying coffee in Costa, or petrol, paying for a hotel or flights, groceriesÖanything that I am going to spend over £5 on.î Mr Welch is going to see his average annual bonus from this facility, which was roughly £500, drop significantly because the cashback rate is being slashed to 0.25%.

He went on to say: ìÖthe bonus coming in January was really timely after the Christmas period. After being a loyal Capital One customer for years, I shall now try to source a better deal [somewhere else].î

Capital One went on to inform their customers that the annual fees for the cashback cards, that amount to between £18 and £120, will be eliminated and those that have already paid this cost will have their money refunded. They did not say which card facilities or exactly how many customers will be affected by the upcoming changes.

The UK Cards Association has a membership body that issue 55 million credit cards per annum. They have voiced their disdain over the incoming caps, stating ìthey would upset the balance of cost-sharing between retailers and cardholders.î They also stated the limitations will lead to a smaller amount of investment in fraud protection technology and may also have a negative impact on other credit card bonus schemes such as loyalty rewards with supermarkets and air miles.

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