The EU adopted new rules limiting interchange fees, or the prices that payment networks can charge, for credit and debit cards.
I asked, are credit cards about to be killed off in Europe? The economics of credit cards as we know them are predicated on fees that go to the payment networks and banks in exchange for processing transactions.
Not everyone was concerned, such as this snark:
Alarmist? Miles from Blighty pointed out today that Capital One has stopped issuing some rewards cards and is informing existing customers that their cards will receive less in the future.
The Telegraph reports:
Consumers face cuts to the air miles, cash bonuses and other rewards they collect from credit cards because of a law passed in Brussels last month.
Capital One, one of Britain’s biggest card providers, has become the first firm to scrap the perks following new EU restrictions on the profits it can make.
In a statement the company said its cards, which paid customers up to 5p for every £1 spent, were “no longer sustainable”.
All Capital One reward cards have been removed from sale with immediate effect. Letters will be sent to existing customers, believed to number in the hundreds of thousands, warning that from June 1 the amount they earn in future will be much lower.
Disruption of payment networks will come from technology maybe not bitcoin and as it turns out not paypal but processing costs are coming down. It’s ironic that it took about 65 years for governments to crack down on the prices charged by credit card payment networks, as they’re coming under market pressure for the first time.
But the idea that payment processors and the banks who extend short term credit should get paid for the services they provide is surreal. As I wrote last month,
While merchants want to be able to accept credit cards while not having to pay to do so, it’s worth nothing that credit cards are a really great benefit and value-creator in ways we often take for granted.
- They’re far more convenient than cash
- They limit the ability for employees to steal, compared to cash, so offer real savings to merchants
- Payments happen electronically, no more warehousing cash and taking it to the bank. This not only saves time it also prevents theft (robbery).
- Eliminates risk to the merchant of bad checks. Merchants can of course pay to insure their checks, but that too comes at a cost. That means retailers don’t have to worry about collecting the money in the event a customer passes a check from an account with insufficient funds.
- Credit cards foster online transactions.
And of course plenty of studies have shown that people spend more on credit cards than they do when paying by cash. Why shouldn’t card companies get paid for this? Despite legal cases claiming monopoly, we have not only Visa and MasterCard networks but also American Express and Discover (and internationally Diners Club still processes through its own network rather than via MasterCard as in the US).
For now though let’s just sympathize with our frequent flyer friends across the Pond. And just as nearly everything premium cabin is about to get more expensive with British Airways Executive Club, too.