Credit card perks cut as new EU rules bite

Many of us enjoy a range of perks when using our credit cards, amassing airmiles as we spend, or totting up cashback or loyalty points.

But, change is coming to the credit card world – and it could result in significantly less generous rewards.

From the start of this month Capital One scrapped its cashback scheme, which used to provide customers with 0.5 per cent back on their spending. The company is blaming an EU ruling: "Changes in our industry mean it is no longer sustainable for us to offer cashback on your card. This is because the fees we receive when you use your card are reducing."

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The new EU rule comes into force from October, putting a cap on the amount that retailers have to pay to card providers in return for being able to accept payments via their plastic. This charge is known as the interchange rate and in the past shops have paid credit card companies an average of 0.7 per cent of each transaction. But, from October that fee will be capped at 0.3 per cent, a reduction that is expected to eat into credit card companies' profits.

"The move to cap the interchange fees charged by banks to handle card transactions will undoubtedly have a knock-on effect on the credit card industry," says Kevin Mountford, head of banking at Moneysupermarket.com. "It is possible we will see a reduction in the rewards offered by card providers, as well as an impact on promotional zero-interest offers."

Credit card companies are expected to try and recoup some of their lost profits by cutting back their reward schemes. After all, cashback and reward points attract the least profitable customers to credit cards. Typically, a credit card user who is amassing points or cashback is the most likely to pay off their balance in full each month therefore making little money for the company.

There are already signs that perks are facing the chop. Like Capital One, Sainsburys has made made cutbacks to its credit card reward schemes in recent months, and Santander, Tesco Bank, Lloyds and M&S Bank have all said they are currently reviewing their reward schemes.

As you can see from the table the only credit card firm that is unaffected by the ruling is American Express as it negotiates fees with retailers independently. So, if you want to be certain your perks will remain it may be worth switching to an American Express card. Otherwise, keep a close eye on your account and watch out for changes that could make your card far less rewarding.