EU rules mean you're getting less cashback from credit cards: these are the best deals left…

Consumers have suffered a string of axed or reduced credit card rewards since the introduction of a new EU regulation that caps debit and credit card processing fees. 

Natwest, Royal Bank of Scotland, Tesco and M&S are among the providers to cut credit card cashback or reduce points incentives since the European commission introduced the Interchange Fee Regulation (IFR) in December. 

"Interchange fees" are part of the Merchant Service Fees paid by retailers to their bank to process card transactions.  The charges are centrally set by card schemes such as Mastercard and Visa. 

Before the 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.  

• Which banks WON’T let you withdraw Isa money and then pay it back in again?
• Which credit card is best for customer service? ​

According to The UK Cards Association, UK banks will lose £750m per year from card transactions thanks to the new rules.  This puts a significant dent in their revenue and rewards schemes have been cut to recoup the loss.

Credit card reward schemes slashed

Capital One, one of the biggest credit card providers, was the first to pull back its cashback scheme.  It withdrew all of its reward cards in April 2015 as the EU rules meant they were "no longer sustainable". 

A month later, RBS and Natwest announced the end of the “YourPoints” scheme which gave customers one point per £1 spend.  YourPoints was withdrawn in July and by December, both banks had also reduced the cashback on credit card supermarket spend from 3pc to 1pc.

Tesco Bank was another provider which slashed its rewards scheme.  In November, it announced that customers would need to spend £8 outside Tesco to earn one Clubcard point, instead of £4 previously. 

Recent credit card reward schemes cut

Source: Moneyfacts

At the time, a Tesco spokesman said: “As a result of changes in the credit card industry taking affect this year, the amount that card companies earn from businesses who accept credit cards is reducing.

"At Tesco Bank, we use that income to fund the Clubcard benefits we give back to our customers, and as a result, we’ve had to make some changes to the amount of points our customers earn."

M&S Bank also cut rewards.  Customers were told they would earn one point for every £5 spent from February 2016, instead of the usual £2. 

Instead of reducing the cashback, some providers increased annual credit card fees – the cost of Santander’s 123 credit card went from £2 to £3 a month in January. 

A Santander spokesman said: “External market factors mean we’ve had to make some changes to ensure the products continue to meet the needs of our customers, but also our shareholders."

Santander suggested the EU commission ruling was part of the decision and that it may affect cashback in the future. 

It added: “The European commission ruling on interchange has significantly reduced the fees banks receive when customer’s use their credit cards. As this ruling impacts the amount of revenue we receive each time a card is used there is a direct link to the level of cashback that we can offer with the 123 credit card.”

Are there any credit card reward schemes left?

There are still some credit cards offering decent rewards, such as American Express.

The American Express Platinum Express Everyday Credit Card pays a generous 5pc cashback on up to £2,000 of purchases made in the first three months.  After this, it offers 0.5pc on spend of £3,500 and 1pc on spend between £3,500 and £7,500. Purchases above this will earn 1.25pc.  

However, a significant requirement is that customers spend at least £3,000 per year to receive any cashback – failure to do so will result in none at all.

Initially, American Express was given a "time-limited exemption" from the interchange fee caps by HM Treasury.

This is because it issues the cards directly to customers but also has a direct relationship with the merchant. Therefore, any fees passing between the customer’s bank and the merchant’s bank would be between American Express – essentially it would be paying itself.  

In line with the regulation, if American Express had less than 3pc market share it would not be subject to the cap. However, as American Express was above the threshold in December, the Payments System Regulator decided the cap would apply to American Express credit card transactions as of April 1.

The provider told Telegraph Money: "We do not anticipate making any changes to our cashback products in direct response to the Regulation. We do though regularly review our products to ensure they remain competitive and sustainable in light of the changing economic environment."

While Santander’s 123 credit card now carries an increased fee, it still pays decent cashback – for now. Card holders can earn 1pc at supermarkets, 2pc at department stores and 3pc at petrol stations, TFL and National Rail. All categories limit the cashback to £3.  Customers could earn a maximum of £108 per year minus the £36 fee.

Asda also have a credit card that pays 1pc cashback on shopping in store plus Asda fuel, and 0.5pc on spending elsewhere. Asda said it has no plans to scrap the reward schemes.

For more options, see our favourite cashback credit cards.

Is the cap as beneficial as it seems?

The commission suggested that as well as benefiting retailers, the capped interchange fee would also be good news for consumers. 

Commission spokesman, Yizhou Ren said that while retailers do not directly pass on credit and debit card charges, they factor it into the selling price of their goods and services.  Therefore, if the saving is passed on it could mean lower costs for shoppers.

Ms Ren said it was too early to see whether the cap had impacted retail pricing just yet.  However, Richard Koch, head of policy at The UK Cards Association warned the IFR could actually cost consumers more.

He said: "We expect to see more providers readjusting their products to try and recover the lost income.  As well as the withdrawal or reduction of reward schemes, it’s likely that more banks will introduce more credit cards with annual fees and some may also increase the APR."

Mr Koch added these costs could easily outweigh the benefits of the cap.

"There is a chance that lower interchange fees may result in consumers paying less for their shopping but it is minimal. A £25 basket will only be reduced by 5p if the retailer passes the saving on."

Have a question for our experts? Email moneyexpert@Finance.co.uk. The best of the answers are included in our weekly newsletter