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Hey big spender …. we don’t want your credit card business

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There are very few businesses which actively try to discourage their customers from spending more, especially in the consumer field.

If you are running a B2B company, of course, you may be keen to diversify your income (an issue we had with HfP in the early years) so you are not reliant on a small number of large contracts.  Most consumer facing companies, on the other hand, would love you to spend more.

With one exception ….. credit card companies.

Why big spenders cannot get credit cards

Since interchange fees (roughly speaking, the fee that credit card companies can charge retailers) were capped at 0.3% on consumer credit cards, issuers of rewards credit cards have been on the back foot.

It is likely that the interchange revenue they are now receiving does not cover the cost of the rewards.  There are other sources of income, of course (FX fees, interest, annual fees) but often not enough to make a difference.

This is a particular problem with fee based cards.  Let’s take the two Virgin Money credit cards for example:

the free card (12,000 miles sign-up bonus until 30th June) earns 0.75 miles per £1

the £160 card (30,000 miles sign-up bonus until 30th June) earns 1.5 miles per £1

In this case, the additional miles you earn on Reward+ are partially funded by the £160 fee.  This only holds to a certain level of spending, however.  Beyond this the issuer can be on the hook very aggressively.

If you take the Virgin cards as an example …. if Virgin Money is paying Virgin Atlantic 0.8p per mile, which is conservative, then the £160 fee is eaten up in extra payments once you hit £20,000 of spending per year.  In reality, because the annual fee is split between the airline and the issuer, the cut off point where the fee no longer covers the extra miles being bought is even lower.

A new sort of credit card customer has appeared in recent years, and many of them read HfP.  You may not know that Google and Facebook advertising can be paid by credit card.  There are many companies, often very small private ones, which are spending £2,000 to £10,000+ per week on online ads – and charging it all to a credit card.  Great for the credit card holder, bad news for the issuer.

Your card account may be at risk

I had lunch last week with two credit card consultants (yes, it’s a thing).  One was someone I had known for a few years and the other was a colleague who had wanted to meet me.  It was a fascinating session.

One story that came out is that one credit card issuer active in the loyalty space is looking at its legal options for closing down the accounts of heavy spenders.

Under fairness rules, you cannot simply close down a card account, irrespective of what the terms say.  If bills are being paid and there is no deterioration of the underlying credit position of the cardholder, there is – apparently – not much you can do as an issuer, however much money you are losing in funding rewards.

(I know the name of this issuer but do not want to repeat it here, since it is clearly third party heresay.)

The other consultant was convinced that fee-based loyalty credit cards will eventually start to restrict rewards to the first £50,000 of annual spend.  The sweet spot is less than that, but the limit has to be high enough not to put off too many people who would otherwise be profitable.  This will be bad news for those HfP readers charging thousands of pounds of Google and Facebook ad spend each week.

Who does want your business?

The only card company which should be queueing up to accept high-roller business is American Express.  Unbranded American Express cards (Green, Gold, Platinum, Centurion, Amex Rewards) are not subject to the interchange fee cap.  They can still charge 1.5%+ to retailers.

And yet, and yet …. The Platinum Card has an exceptionally weak rewards scheme, earning just 1 Membership Rewards point per £1 despite the £575 fee.

Preferred Rewards Gold is better, as you get double points on airline transactions, double points on foreign currency transactions and 10,000 bonus points for spending £15,000 per year.  It is still nowhere near as generous as the Virgin Flying Club Reward+ Mastercard (1.5 miles per £1, £160 fee) or the Lufthansa Miles & More Mastercard (1.25 miles per £1, £79 fee) for high spenders.

We still haven’t seen the full impact of the interchange fee caps due to the long-term contracts which were already in place.  As these deals come up for renewal, expect earning caps on fee-based cards with high mileage rates, and potentially some more aggressive ‘points per £1’ deals from American Express to mop up the big spenders.

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Comments (146)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Martin says:
    17 Jun17 June 07:33

    It’s difficult to diversify if you are putting through 20k on each of the 6/7 points earning cards already. If virgin is unhappy then it’s tough luck but I wonder how the financial ombudsman would look at that after they try close one of my accounts.

    • Mark says:
      17 Jun17 June 07:41

      Crikey some point accumulation that is.
      Nice one I bet you don’t travel in economy 🙂

    • Rooster says:
      17 Jun17 June 08:54

      Yes it’s hard to put through 1m without the Amex charge card

  • Rob says:
    17 Jun17 June 07:43

    I put £100k/month through a mix of American Express and VA cards and haven’t had any problems to date.

    • RussellH says:
      17 Jun17 June 11:28

      I struggle to put £1K / month through my Hilton Visa – to maintain my HH Gold
      I have had to stop using my Amex for more than a few £ / month for the moment.
      🙂

  • Alex Sm says:
    17 Jun17 June 07:57

    They are definitely looking into interest rates. Creation is gradually becoming Wonga – they sent me a notice last week that they are increasing the base interest rate to whopping 27.9%! Looks like a daylight robbery

    • Andrew says:
      17 Jun17 June 09:05

      “Becoming a Wonga”?

      Hasn’t it always been a sub-prime lender that happened to have some good-book clients attracted by in-store discount promotions.

    • Genghis says:
      17 Jun17 June 09:52

      Not too far off the Amex rates for standard purchases and BTs (22.9%) and exactly the same for cash advance (27.9%)

    • guesswho2000 says:
      17 Jun17 June 13:25

      Interestingly I noticed my Creation ED card had increased from 12.9% to 19.9% for purchase, BT & cash. Pretty sure I didn’t get any notification either, unless it was hidden away on a statement. Not bothered what the interest rate is though, tbh, other than the occasional cash withdrawal for a few days, I won’t pay any significant amount.

  • James says:
    17 Jun17 June 08:25

    Hmm interesting. Guess they the card companies aren’t too keen in people chucking the best part of 100k in various tax payments via curve in that case?

    • Roy says:
      17 Jun17 June 10:09

      I doubt Curve like big spenders, either. For each transaction, they receive interchange fees of 0.2%, and (if linked to a credit card) pay out 0.3% plus scheme charges (so maybe 0.4% total?).

      • the_real_a says:
        17 Jun17 June 14:48

        Curve MAKES money on the money back deals. They are part of an affiliate rebate scheme with the merchants paying back upto 8% into the network. That’s why you need to select from a list of retailers. Same affiliate scheme is used (but more generous money back to holders) with prepaid cards such as Pockit.

    • Graham Walsh says:
      17 Jun17 June 11:02

      That was exactly my thought. There was someone asking yesterday how to increase Curve limit beyond £100k. So either a very lavish lifestyle or large company bills (or both).

      • guesswho2000 says:
        17 Jun17 June 13:28

        I’d love to know how to even get that, my Curve is at the 50k limit, and when asking for an increase their advice was to keep spending until it’s reviewed 🙄

        • RTS says:
          17 Jun17 June 15:04

          Got mine increased to £100k a couple of weeks ago 😀

        • Richmond says:
          18 Jun18 June 12:36

          I was told exactly the same, the thing is, I hit the £50K limit quickly, so can’t spend more or more often. I also don’t want to waste my limit on pointless transactions I can do with other cards. I only use Curve for HMRC payments.

      • The Urbanite says:
        17 Jun17 June 17:17

        I’m approaching £100k spend on mine – to get the increase, just ask them. If they like how you are using the card they’ll increase it without question.

  • Rooster says:
    17 Jun17 June 08:49

    The only cards are Amex charge cards for high spend, if you try putting a 100k in a month on a regular personal card you will struggle even with a high limit let alone what it looks like on your credit report (payments are often recorded).

  • Tony says:
    17 Jun17 June 09:00

    Fascinating stuff.

  • Matt says:
    17 Jun17 June 09:11

    I lived in the States and I recall it was against the credit card t&cs to put reimbursable business expenses through a personal credit card and if it was abused it could lead to the cancellation of the card and the loss of accrued benefits (points etc), I assume if my recollection is correct (which it may not be) that the UK is different and there’s no constraint on putting business expenses through a personal card?

    • Matt says:
      17 Jun17 June 09:16

      I’d say it’s fairly common place to pay for expenses and then claim them back from your employer. It’s also fairly common to pay on a credit card. I’ve never heard of any issue with that, or having to pay cash for business expenses.

      I suspect that paying £20k of business expenses is less common, away from this site!

      • Lady London says:
        17 Jun17 June 10:59

        Many UK employers don’t issue company credit cards thus forcing the employee to use their own cash or credit and claim back. They all seem to refuse cash advances for major businesses expenses to employees as well. Amex and Citibank can really help fill this gap.

    • Rob says:
      17 Jun17 June 09:47

      In theory there are, I think, linked to S75. You are basically getting insurance via S75 which you would not be entitled to on a business card.

      Card company also loses a pile as there is no interchange cap on corporate cards.

      Do I ever hear stories of people getting into trouble over this? No.

    • Chrisasaurus says:
      17 Jun17 June 12:18

      In practice, everyone I work with uses their pet credit card (usually airline Visa with eye watering earning rates) and reclaims. So regardless of the t&cs that is the reality.

      It isnt just the S75 risk that would make this unattractive to the card company though – it’s also an unquantified risk, because they’re now on the hook for my spend and potentially the risk of a the business going under and leaving me with unpaid business purchases…

    • the_real_a says:
      17 Jun17 June 14:52

      AMEX told me off for putting (albeit large) business expenses through my personal card. Their concern was that should my employer go bankrupt i would be personally liable for any debt…

      • lady London says:
        17 Jun17 June 15:53

        Interesting.

        And yet if you read the t’s and c’s of corporate cards issued to you by your employer, IIRC those t’s and c’s make you, personally, jointly liable to, say, Amex with your employer for amounts spent on the card. I haven’t checked one recently. But that was always in corporate card t’s and c’s when I checked before.

        I believe when Lehmann went bust, the employees still personally owed the money on their corporate cards that had been spent for business expenses and still had to pay the card company even though they could no longer claim from Lehmann.

        If I’ve got this wrong please update me.

  • Jonny says:
    17 Jun17 June 09:19

    Interesting article. It probably also matters what kind of relationship you have with the issuer. Eg high five or six figure spend per month may not be frowned upon if you are an HSBC jade/private with the appropriate income/investments. Obviously would require a rethink for some in terms of earning different types of miles etc (and those where they don’t really have other financial products…)

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