As we stare into the precipice of double-dip recession you’d be forgiven for thinking, from the endless pessimistic headlines, that we about to enter an economic dark-age the like of which we have never seen before.
It is true that getting credit (on sensible terms) is proving ever more difficult for those with a bad history of credit management, but if you’ve been a ‘goody-two-shoes’ your options have never been better (I still find it crazy that I can borrow on better terms than Italy! ) Those with impeccable credit histories can now expect deals of close to 2 years for balance transfers (roughly 5 or 6 months better than the best deals we saw in the lead up to the crash). If that doesn’t suit your desire to spend and pay down you can now get combined balance transfer & purchase cards for up to 15 months (I remember when we thought 9 months was fantastic).
“…all vying to give us cash for spending with them!”
For those who just want to spend and need further tempting more and more credit card issuers are offering cash back. American Express, Capital One, Santander and others are all vying to give us cash for spending with them! No, you’ll be surprised to hear, they’re not doing this from the goodness of their Banking hearts. The credit card platforms you use for buying your goods with (Visa, MasterCard, American Express etc) all charge retailers (or more specifically the retailer’s bank) a percentage fee for right to use their platform for the shopping you have bought.
This is called an “interchange fee” and although many retailers argue that it is too high, and potentially anti-competitive, it exists (and won’t go any time soon). The actual interchange amount differs by card platform and by the retailer you are buying, but every time you make a purchase an interchange occurs. How do the retailers afford this? No prizes for guessing…but yes, you’re already paying for it!
If you use cash, debit card or a credit card without rewards you are effectively subsidising those who are claiming back interchange funded rewards. So what do you have do you get hands on this? Get a rewards card of some kind. A number of different types exist. Airmiles (like BA Avios), Points (like Nectar or Tesco Clubcard), but possibly the most transparent and easy to understand is cash back and is a market that’s alive at the moment with issuer activity.
American Express (because of the high interchange they charge retailers) have always been the leaders in this space, but last autumn we saw Capital One and Santander challenge for a slice of the market. Given that they both use MasterCard to process their payments this was a bit of a surprise. MasterCard don’t have get the interchange to challenge American Express like for like on percentage cash back (they reduced theirs whilst they were under investigation from the Office for Fair Trading), but they did have one trump card they could play – People’s understanding of American Express. MasterCard may not pay back so much, but everyone knows it is very widely accepted.
American Express tends to live in the mind of customers as a premium brand that is not widely accepted outside of big cities. It’s a brand that is so exclusive it has its own invitation only credit card (the American Express Centurion) without a credit limit – Yes, you could buy a house on it!
In Autumn 2011, Santander launched their 1-2-3 card , whilst Capital One went live with a 5% cash back card (Capital One World) in a head to head move no-doubt designed to antagonise American Express . Not wanting to lose their cash back crown American Express responded by upping their game. They revamped their cash back card to offer 2.5% for the first 3 months and 1.25% after that. On almost every measure this card was better for customers over the course of a year than the Capital One World, but it seems the good folk at American Express had overestimated the British public. Yes, it was a better credit card for most people, but to know this we’d have to read the small print and that isn’t something we are good at. On the face of it, at 5% cash back, the Capital World looked like the strongest product around.
Of course, the thing with cash back is that is really doesn’t matter what percentage you offer to hook people because it’s capped. 50% cash back sounds great, but if it’s capped at £50 then you’ll only ever get £25. This is where the 1-2-3 Card falls down too – with its £300 cap on fuel (so you’ll only ever get £9 per month).
Not to stay down for long American Express have already re-responded and the great news for consumers is that they have matched the Capital One 5% intro period with their Platinum Cashback….actually it’s slightly better even than that. Both Capital One and American Express cap the 5% cash back for the first 3 months at £100, but with Capital One you can’t earn any more in the first 3 months once you’ve spent your first £2000. With American Express you continue to earn at 1.25% once you’ve maxed out your 5% cap at £100. Yes there’s still fee of £25 which is annoying, but given that it still offers an ongoing 1.25% cash back, versus the tiered Capital One cash back which up to £6000 annual spend remains at 0.5%, it’s a great card!
And what of the usual ‘issue’ with American Express – that is, that it isn’t accepted in enough places. Well, if there ever was a problem, things have changed there. The world itself has moved on. Most high streets are no longer made up of small independents and local shops. Rightly, or wrongly; multi-national chains of identikit shops pack every high street and almost all of them accept American Express. More importantly all the big 4 supermarkets accept American Express.
So perhaps now is the time to start getting your hands on the cash back you’ve been funding for others? And who knows, with a few quid more in your pocket the recession might not seems quite so bad!
|Written by :
Mark is the Marketing Director at CompareandSave.com, having previously worked at a number of media agencies on various financial brands.
He now splits his time between promoting CompareandSave and investigating new ways to help our readers save money.
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