Card Product Changes in Europe in Light of Interchange Regulation

Navigator Edition: April 2016
By: Maria Popova, Elisabeth Magnor, and Alexander Hirschhauser

In order to identify issuers’ reactions to the interchange decreases effective December 2015, First Annapolis has been closely monitoring the product offerings of the top 5 issuers in 13 European markets over the past two years.  Our findings confirmed our initial hypothesis that issuers’ immediate responses to reduced interchange revenues would include rationalizing their product set, reducing rewards, and increasing APRs and annual fees.

Product Rationalization

As shown in Figure 1, several issuers in the UK, Poland, and the Czech Republic rationalized their product set, reducing the number of card products in their portfolio and focusing on simple customer propositions.  Three large UK issuers—Lloyds, RBS and Barclay’s—withdrew cards with no annual fees; one Czech issuer, CSOB, rebranded its card portfolio; and Polish issuers such as Bank Pekao and Bank Millennium scaled down their business card offerings considerably.

Figure 1: Breakdown of Changes in European Card Products
October 2014 – January 2016

Figure-1_-Breakdown-of-Changes-in-European-Card-ProductsSource: First Annapolis Consulting card product research, company websites.

Loyalty and Co-brand Rewards Reductions

In the UK, where credit card interchange decreased by almost 50 bps (from approximately 0.77% for Visa and 0.80% for MasterCard down to 0.30%), many issuers have significantly reduced the value of rewards of their loyalty programs.  In some cases earn rates have fallen by 500%, while other issuers have removed rewards completely.  Large UK retailers such as Tesco and Sainsbury’s have slashed earn rates on their PLCC products by increasing the required spend to obtain a club card point. Capital One and Sygma Bank (LaSer UK) reduced and eliminated the cashback earned on certain credit card products. Overall in the UK, issuers who have decided to reduce the value proposition on their card products have done so by reducing their points-per-pound spend by 65% (see Figure 3). This trend is also found in the Czech market, where interchange on credit decreased by 70-80 bps, from 1.0% for Visa and 1.1% for MasterCard to 0.30%.  Raffeisen reduced cashback from 2.0% to 1.0% and the cap on monthly rewards from 1,000 CZK to 250 CZK. In Spain, issuers such as Bankia scaled down advertising of some of their rewards programs such as card-linked discounts at petrol stations.  Co-brand programs, especially in the airline sector, in Italy, Spain, and Poland have seen reduced rewards value, as well as increased annual and cash withdrawal fees.  For example, Gruppo Intesa San Paolo decreased the miles earned per euro spent by 0.5 points on the AirItalia co-brand card.

Annual fee and APR Increases

Eleven banks in France, UK, Sweden, Poland, the Netherlands, and Belgium have increased the annual fees on their card products (as illustrated in Figure 2). In France, Credit Agricole Group, BPCE and BNP Paribas have raised fees on approximately six card products each, with average price increases of 14%, 7%, and 40%, respectively.  In Sweden, Handelsbanken raised the annual fees on four cards, with an average increase of 36%.  In the Netherlands, Rabobank increased fees on half of their card portfolio, and ING has initiated annual fees on two card products which were previously free of charge. Overall, the changes in annual fees in Western Europe, the UK and Central & Eastern Europe have increased an average of 33%, 50% and 28% respectively, as demonstrated in Figure 3.

Figure 2: Percent of Issuers Changing Pricing After
Interchange Regulation

Figure-2_-Percent-of-Issuers-Changing-Pricing-AfterSource: First Annapolis Consulting card product research, company websites.


Figure 3: Summary of Market-Level Changes in Card Product Features

Figure-3_-Summary-of-Market-Level-Changes-in-Card-Product-FeaturesSource: First Annapolis Consulting card product research, company websites.

Several banks in the UK, including Lloyds, Barclays and Santander, raised the APRs on their credit card products, with an average increase of 154 bps.  The APRs on several credit card products issued by Swedbank and Handelsbanken in Sweden decreased, potentially due to reductions in Central Bank interest rates. Also, as Nordic banks initially have had low interchange levels due to local debit schemes, and generally being more debit than credit centered markets, issuers have not been pressured to substitute interchange revenue with higher fees or APRs.

Implications for Issuers

Product rationalization, rewards reductions, and price increases are not surprising in light of the substantial reductions in interchange, and we expect that issuers will continue to make product adjustments. While UK issuers took earlier and more dramatic steps due to the large interchange reductions, continental European issuers for whom the reductions were not as steep are likely to phase in product adjustments more gradually.

In the short term, we expect issuers and co-brand partners to continue optimizing their rewards programs and focus rewards more narrowly on the most popular merchant categories, such as supermarkets, petrol, and travel.  We also expect issuers to focus more on “soft” non-financial benefits, merchant discount programs, and customer experience improvements on mobile and digital channels.

In the longer term, we expect issuers to:

  1. Refine the user experience to clearly demonstrate the value of cards outside of rewards, and promote the ease of use and utility in e/m-commerce (e.g., easy checkout, spend tracking, easy access to credit and installments, etc.);
  2. Promote lending on cards, via both traditional methods (e.g., marketing revolving credit cards more) and digital commerce to promote installments on cards (e.g., BBVA’s mobile wallet has been successful in encouraging cardholders to select an installment option on traditional card platforms); and
  3. Build ways to monetize the vast amounts of data at issuers’ disposal, including using customer data more effectively to make offers to cardholders (both from the issuer and partners) that are more targeted and more integrated into the digital commerce experience.

First Annapolis will continue tracking changes in the European card market and further explore how the interchange regulation impacts European issuers over time.

For more information, please contact Maria Popova, Consultant,; Elisabeth Magnor, Analyst,; or Alexander Hirschhauser, Analyst, Each specializes in Credit Card Issuing.

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