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Santander is limiting the cashback on its popular 123 credit card to £9 a month for existing customers from February and increasing charges, blaming EU regulations and increased costs in the banking industry.
The bank started pushing back in January when it raised the credit card fee from £2 a month to £3.
Then in October it withdrew the card from the market and only kept it for existing customers.
In its latest cost cutting exercise, Santander is now limiting the amount of cashback customers can earn.
Those who took out the card before September 16 2015 have been able to earn 1pc cashback on supermarket spend and 2pc in department stores – this is currently unlimited.
The 123 credit card also offers 3pc cashback on travel but this is up to £300 a month.
However from February 1 customers will only be able to earn up to £3 a month in cashback from each of the three spending categories.
Each month borrowers will earn 1pc on supermarkets on spend up to £300, 2pc on department stores on £150 of purchases and 3pc on travel on £100. This means a total of £108 can be earned in a year – £72 minus the fee.
Santander is also raising the interest rate from 12.7pc to 15.9pc.
So instead of paying £190.50 on credit of £1,500, customers will need to pay £238.50.
When the 123 credit card was withdrawn in October Santander replaced it with three new cards – which are far less generous.
The All-In-One credit card costs £3 a month and pays 0.5pc cashback on all purchases. It also gives customers five “welcome cashback” offers from retailers between 5pc and 25pc if you opt into the scheme on mobile or online banking.
The Everyday credit card and Zero credit card do not offer any perks.
What’s brought on the changes?
Santander said the capped cashback was in response to the reduction in EU “interchange fees” which was put into place December 9 2015.
Interchange fees make up part of the Merchant Service Fees which retailers pay to their banks to process card payments.
Before the Interchange Fee Regulation was introduced, retailers paid an average rate of 0.8pc per credit card transaction (which could go up to 1.5pc) and 9p for debit cards. As of December 9, the fees were capped at 0.3pc for credit cards and 0.2pc for debit cards.
The EU Commission suggested the cap would not only be beneficial for retailers but also consumers as the savings could be passed on in the cost of goods and services.
According to Andrew Cregan from the British Retail Consortium, the trade association, prices have gone down but this was not because of the interchange fee cap – he said it was due to a "number of factors".
However a direct negative result of the cap is a spare of credit card reward cuts and increases in fees.
Capital One, RBS/Natwest, Tesco Bank and M&S Bank are among some of the providers to withdraw credit cards or slash the rewards in the last year because of the interchange fees.
American Express’ Platinum Express Everyday credit card still pays a generous 5pc cashback up to £100 in the first three months – as long as you spend £3,000 in a year.
After this, it offers 0.5pc on purchases of £5,000 and 1pc on spend over £5,001. Purchases above this will earn 1.25pc.
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