Capital One has become the first major provider to reveal it's axing cashback for some of its cardholders from 1 June as a result of a forthcoming cap on on the fees card firms charge retailers to process transactions, which fund cashback deals.
These 'interchange fees' as they are known as in the industry, typically add around 8p per transaction for debit card payments and around 0.8% of the transaction for credit card payments.
But in March, MEPs voted in favour of bringing in a cap of 0.2% of the value of the transaction on debit cards and 0.3% of the value of the transaction for credit cards. The UK Cards Association says this is expected to take force in the last quarter of the year in the UK. See the EU agrees card charges shake-up MSE News story for more on this.
MoneySavingExpert.com has previously raised concerns a cap would lead to card rewards and 0% deals being scrapped – something which has proved correct in Capital One's case. It's also unlikely retailers will pass on any gains to shoppers.
The rules still need to be officially endorsed by the Council of Ministers before they can take effect, and it's yet to be confirmed how they'll be translated into UK law.
Will Amex ditch cashback cards?
However, for the first three years the EU's cap will not apply to American Express (Amex) or Diners Club issued cards so it's unlikely the pair will axe cashback.
Be aware we are talking about a card actually from Amex or Diners Club. If it's issued by another bank but with either of those logos, then those cards are hit by the cap. So a Barclaycard with an Amex symbol is affected.
When we asked Amex if it had any plans to axe its cashback cards, it said once the new rules have been officially approved, it will "analyse their potential implications and respond accordingly if required".
We didn't ask Diners Club as it's not a major provider in the UK.
Will other providers ditch cashback cards?
After the Capital One move, we asked the major best buy cashback card providers whether they're planning top axe cashback. Here's what they said:
- Aqua says it has no plans at present to withdraw its cashback offering.
- Asda says it is "committed to maintaining its benefits", including the level of unlimited cashback on existing credit cards at the current 1% on Asda spending and 0.5% on spending outside of Asda.
- Barclaycard didn't respond to our questions despite us pushing it to.
- Lloyds Bank says it can never guarantee how long a product will remain on the market and that it regularly reviews its range.
- MBNA says it's waiting to see how the UK implements the cap before it makes any changes.
- Santandersays it needs to "reflect" on how to ensure it maintains the "right balance" going forward. It adds that it regularly review all its products.
In the meantime, here are our top pick cashback cards below. Just remember to always repay IN FULL each month. For the full details on these cards plus other alternatives that are still available, and our eligibility checker tool, see our Cashback Credit Cards guide.
Top cashback credit cards
|Card||Annual fee||Cashback||Rep APR|
|Amex Plat Everyday* – good for big, one-off planned purchases as huge intro cashback.||None||5% for 3mths up to max £100 back, tiered up to 1.25% after.||19.9%|
|Santander 123* – best for those who drive big mileage so petrol cashback covers fee.||£24 (i)||3% on petrol/trains (max £9/mth back), 2% depart stores, 1% supermarkets.||16.5%|
|Aqua Reward* – for poorer credit scores.||None
||0.5% on all spending.||34.9%|
|(i) Refunded in first year for Santander 123 bank account customers.|
On whether or not the specific cards in the table above will keep their cashback, MoneySavingExpert.com creator Martin Lewis adds: "Amex-issued Amex cards like the one above are unlikely to be hit by the cap – so it's unlikely to change.
"Santander 123's cashback is integral to its offering, so I suspect it's unlikely to go and Aqua uses it to target poorer credit scorers, so I'm hopeful (no certainty) it'll stay."
Q&A on what's happening for Capital One customers
I'm a Capital One customer. Am I affected?
The card giant wouldn't tell us which credit cards are impacted or how many customers are affected, it only says that anyone with a cashback card will continue to earn cashback until 1 June, but that from this date onwards it will remove or reduce the cashback on "unsustainable products".
Some with cashback cards that are deemed sustainable will see no change.
When pushed on whether the move is product related, or customer related – for example whether it is dependent on when the customer took out the card or how 'risky' they're deemed – Capital One confirmed it is the "unsustainable products", which are affected.
One MoneySavingExpert.com forum user reports receiving a letter saying that the 4% cashback they earn on Capital One's Luma card is being axed, while others say they've been told the cashback on the World Mastercard and the Aspire World cards are also being cut completely.
Capital One says it's in the process of notifying affected customers of the changes. It has also taken its cashback and rewards cards off the market for new customers. See our Cashback Credit Cards guide for alternatives and below for an explanation of what's likely to happen with other cards.
Will Capital One cashback accrued still be paid?
Capital One automatically pays customers any cashback accrued once a year, traditionally in January.
However it says anyone whose cashback is being axed from 1 June will still be paid any cashback they've earned up until this date. This payment will be made in June.
Can I still use my Capital One card from 1 June?
Yes, you can still use your card as normal from 1 June, although some will no longer earn any cashback.
Is Capital One changing any fees/charges too?
Capital One says it won't increase any fees or charges as a result of the move, but says it's removing any annual fees currently paid by impacted customers.
Where you've already paid the annual fee this year, Capital One says it will automatically refund this.
'No longer sustainable'
A spokesman for Capital One says: "Capital One has withdrawn its cashback and rewards products which are now no longer available to new customers. This decision has been taken following the European Parliament’s resolution to cap interchange rates.
"The implications of significantly lower interchange revenue has also meant Capital One has had to review its cashback and rewards products for existing customers, several of which are no longer sustainable under current market conditions.
"We will therefore, reluctantly, be removing or reducing the cashback on these unsustainable products."