American Express cuts back on cash back
AMERICAN Express have slashed the cash back available with their Platinum Cashback Everyday credit card.
From next March, cardholders will need to spend more than £4,250 a year on the card to earn any cash back at all.
Most cash back credit cards, including this one, already encourage high spending by operating tiered rates and limited time offers, in this case up to 5% for three months, the highest rate going.
But this move goes further than those inducements, making the card more or less useless for smaller spenders.
Some speculate American Express' decision has to do with upcoming increases to interchange fees, which will cut into profits.
Big spenders only
The free Platinum Cashback Everyday card currently pays cardholders 5% cash back for the first three months on up to £2,000 of purchases.
After that, cash back is tiered between 0.5% and 1.25% based on annual spend: the more cardholders spend, the more they get back.
In a recent letter to cardholders, however, AmEx advised that from March next year they will only pay cash back if more than £25 is accrued over the course of a year.
That amounts to £4,250 of annual spending, not taking into account the 5% offer because the new rule will hit cardholders who opened their accounts before August 2009.
Previously, cardholders could take cash back once they'd earned £12 over the year.
Interchange fee laws to blame
The move has been interpreted by many as a sign that credit card rewards are dwindling as a result of new EU legislation, which is set to change the way banks charge fees for transactions.
The proposed law will cap or remove what are known as interchange fees, the price retailers and banks pay for card transactions.
For example, when a consumer pays for something using a debit or credit card the card-issuing bank charges the retailer's bank an interchange fee. The retailer's bank then extracts a further fee before giving the money to the retailer.
Credit card transactions cost the retailer around 0.9% of the price of your shopping basket. Debit card transactions cost the retailer around 0.2%, or 9p on average every time a customer enters their PIN.
Understandably, retailers, and the EU, don't like interchange fees because they force costs up.
Card companies on the other hand, very much like them.
The move to cap interchange fees is expected to cost Visa and Mastercard about £2.4 billion.
The most obvious remedy from the card companies' perspective, as they haven't been shy in pointing out, is to put a stop to schemes that give 'free' money away and raise fees.
Barclaycard have already withdrawn a cash back card this year and Capital One withdrew their Aspire World card earlier in the year too.
If AmEx are making their scheduled 2014 rate change because of interchange fees, however, they're playing it safe: the company will fare better than others when the new legislation is implemented.
After interchange fee caps were introduced in Australia, American Express and Diners Club actually got a small bump, compared to Visa and Mastercard, since their three-party model, in which they're both the merchant and the card issuer, meant they were still collecting two sets of fees.
Reluctant to switch
Whatever the reasons behind this latest change, however, cardholders would be wise to keep an eye out for changes to other reward schemes and where cards can be used.
Despite declining rewards, UK cardholders are notoriously reluctant to switch providers.
A recent poll by TotallyMoney, one of many in recent years, found that 33% of respondents claimed that no amount of money would encourage them to move providers.
67% of those willing to switch said that they would need to make a saving of at least £137, on average, to start the process.
If that's true, even today's very best cash back rates aren't going to be enough of an inducement for many.