The EU ruled in March that a cap will be placed on interchange fees, and these changes are due to come into effect in the UK next month. If you’ve never heard of interchange fees before, don’t worry – they’re not something that most people are really aware of. However, it could affect the way you bank, so you should take the time now to make sure you understand these changes and how they impact you.
What are interchange fees?
Interchange fees are the charges made to retailers by payment firms like VISA and MasterCard for processing a credit or debit card payment. This charge covers the cost of running the payments network and transferring the money across from your bank account to the retailer’s.
You wouldn’t have any reason to notice these charges before, as retailers factor them in when they set their prices – they are already included in the price you pay. Before the decision was made to place a cap on interchange fees, the retailer would typically be charged around 8p per transaction for debit card payments and 0.8% of the transaction for credit card payments. The new cap imposed by the EU means that you’ll now pay 0.2% of the value of whatever you’re buying with a debit card and 0.3% of the transaction value when using your credit card to pay.
These caps are being brought in by the EU in the hope that lower prices will be passed onto customers – it’s estimated that the move will save UK retailers around £480 million a year. On the other hand, income will fall for credit and debit card providers meaning a potential change to the types of perks they offer, so customers could actually end up worse off.
What does this mean for me?
With some credit and debit card providers making cutbacks in order to adjust to these caps being brought in, reward schemes have been some of the first things to be cut.
Card provider Capital One has stopped the cashback deals it offers – the cards used to give customers up to 5% cashback, but this will drop to around 0.5% or 0.25% in the future. RBS announced back in April that it will axe its YourPoints credit card reward scheme. Shoppers could earn one point per £1 spent on their card, with points being redeemable for things like days out and restaurant meals.
Retail giant Tesco has made the decision to increase the amount that Clubcard Credit Card shoppers will have to spend in order to earn their rewards. From November, customers who used to earn one Clubcard point for every £4 spent will now have to spend double this to earn the same amount of points. Tesco World MasterCard customers will be hit more dramatically, with customers seeing rates jump from one point for every £2 to one point per every £8.
And, of course, the reduction in interchange is the reason that the fee for thinkmoney personal accounts is increasing on 16th November – to £17.50 per month for single accounts and £24.50 for joint accounts. These are only a few of the changes undergone by organisations to deal with the interchange fee caps. With the caps set to come into force on December 9th, it’s likely that there are still a few more to follow. Andrew Hagger from Moneycomms.co.uk predicts: “As well as cutting reward benefits, watering down cashback offers or increasing interest rates, we could see promotional 0% purchase and balance transfer deals become less prominent. Plus, there is the possibility that we’ll see more credit cards introducing a monthly or annual fee.”