BA Amex who's paying for the avios?

Old Jun 16, 19, 8:24 am
  #1  
Original Poster
 
Join Date: Mar 2019
Posts: 38
BA Amex who's paying for the avios?

I've just got a BA amex. Racking up the avios. I just wondered who's really paying for these?

Does BA give them to aMex to give out? if so this must be 100s of millions. Or do Amex buy them of BA.
SA100 is offline  
Old Jun 16, 19, 8:29 am
  #2  
 
Join Date: Jan 2006
Programs: AAdvantage Asia Miles Air China
Posts: 743
Credit Cards are a cash cow for a properly run frequent flyer programme. If you look up posts from a chap called DO0t (or something like that-he advises on FFP schemes) can find out a lot.

The CCs buy points from the airline FFPs. Though of course they do not do this out of the goodness of their stone cold dead hearts. The merchants pick up the tab out of transactions and CC holders do if they pay interest.
Nicc HK is offline  
Old Jun 16, 19, 8:30 am
  #3  
FlyerTalk Evangelist
 
Join Date: Nov 2011
Location: Brighton. UK
Programs: BA Silver / VS /IHG Spire & Ambassador
Posts: 12,147
Amex buy them

In the end you - and other card holders- are paying for them via the card fees you pay.
UKtravelbear is offline  
Old Jun 16, 19, 8:43 am
  #4  
 
Join Date: Jun 2011
Programs: BAEC Silver, Virgin Flying Club, SPG
Posts: 689
Amex buys them - and your card fees along with any interest fees and network fees (the amounts merchants pay on each transaction processed) covers the cost.
Magic01273 is offline  
Old Jun 16, 19, 8:45 am
  #5  
 
Join Date: Jun 2011
Programs: BAEC Silver, Virgin Flying Club, SPG
Posts: 689
as for other benefits, like 2-4-1s etc, its unclear whether Amex pays for those, or whether BA contributes/subsidises these in any way - but it is possible they do...
Magic01273 is offline  
Old Jun 16, 19, 11:46 am
  #6  
 
Join Date: Feb 2003
Location: 1A
Programs: Elite Diamond Purple Dot Gold Silver Titanium for life
Posts: 1,810
Originally Posted by Nicc HK View Post
Credit Cards are a cash cow for a properly run frequent flyer programme. If you look up posts from a chap called DO0t (or something like that-he advises on FFP schemes) can find out a lot.
Cash is the keyword here! Co-brand credit cards are not necessarily the profit centre for FFPs but rather are the mechanism for programs to generate revenue, which is then realised via redemptions.

Originally Posted by Magic01273 View Post
as for other benefits, like 2-4-1s etc, its unclear whether Amex pays for those, or whether BA contributes/subsidises these in any way - but it is possible they do...
Co-brand contracts wildly vary depending on the parties. The local market, how aggressive the airline/ffp or bank wants to be in the region and what types of customers they're targeting also play a role in who pays for what benefits. Also consider that, perhaps, Mastercard wants to compete aggressively against Visa in a market - Mastercard pay chip in resources (cash, benefits, data, human capital, marketing, reduced fees etc.) in order to support the bank and the FFP.

Generally the party funding a benefit is the one who stands to gain the most from that specific benefit.

Co-brand card deals are long term relationships. All involved parties need to fully commit to ensuring the sucess of the card.
Like the relationship with your significant other..... sometimes you wash the dishes....sometimes they make dinner. The agreements are about doing what it takes so all parties can share in the success, and sometimes, that means investing in a benefit that is a cost, in order to deliver additional revenue through another stream.
d00t is offline  
Old Jun 16, 19, 3:15 pm
  #7  
 
Join Date: Feb 2016
Location: LHR
Programs: BAEC Gold, *A Gold, HH Silver, IHG Gold Elite, Sixt Gold
Posts: 404
Originally Posted by UKtravelbear View Post
Amex buy them

In the end you - and other card holders- are paying for them via the card fees you pay.
To be precise via the card fees merchants pay. The blue BA amex is free to consumers.
frandrake is offline  
Old Jun 16, 19, 3:53 pm
  #8  
 
Join Date: Jun 2008
Posts: 825
And of course we all know who paus merchants costs in the end......
HMPS likes this.
lizban is offline  
Old Jun 16, 19, 4:21 pm
  #9  
FlyerTalk Evangelist
Four Seasons Contributor Badge
 
Join Date: Feb 2004
Location: London
Programs: BA, VS, HH, IHG, MB, MR
Posts: 26,056
Originally Posted by frandrake View Post
To be precise [paid for] via the card fees merchants pay.
Except, of course, they no longer do.

Amex is paying close to 1p per Avios (I have been told this as a fact by people who know). All of the co-brand Amex cards are now impacted by the EU rules on interchange fees which means that retailer fees - excluding terminal costs etc - are 0.3%. You can do the maths.

The annual fee is split with BA, not sure about the %.

I have never got to the bottom of how the 241 is funded, or if BA just covers it directly in return for getting a chunk of the £195.

There is no logic, as far as I can see, for Amex and BA to remain partners. The current Amex contract has already been ripped up, since it covered an Amex for Iberia (which ended up as a Visa/MC) and an Amex for Aer Lingus (same).

There is no economic reason for BA to stick with Amex post interchange fee capping. At the same time, BA suffers because every BA Amex cardholder needs a Visa/MC as well. Virgin Atlantic is making a HUGE push to become that 2nd card in your wallet (30,000 miles bonus on the paid card at present). If BA moves to a Visa/MC it can get a 100% 'share of wallet'.
Raffles is offline  
Old Jun 16, 19, 4:35 pm
  #10  
 
Join Date: May 2006
Location: North Yorkshire, UK
Programs: BAEC
Posts: 66
The BA Amex card is issued by AMEX directly (ie AMEX is both the card issuer and the payment scheme). As such, this type of arrangement falls outside of the EU interchange regulations and therefore the interchange fees paid by merchants remain considerably higher than for comparable transactions made on a typical VISA/MasterCard credit card product issued by a 3rd party. This protection from the EU interchange rules helps AMEX to be able to continue to offer the product with attractive terms whilst keeping it commercially viable.

By contrast, an AMEX card issued by a 3rd party - e.g. Lloyd’s Bank - is caught by the EU interchange regulations and therefore the fees paid by the cardholder have been increased, the products have been withdrawn and/or the level of rewards have cut back as the economics have been dramatically changed by the maximum 0.3% interchange rate earned in the post-EU interchange regulation world.
Lumpster is offline  
Old Jun 16, 19, 5:50 pm
  #11  
FlyerTalk Evangelist
 
Join Date: Jun 2004
Location: LON, ACK, BOS..... (Not necessarily in that order)
Programs: **Mucci Diamond Hairbrush** - compared to that nothing else matters (+BA Silver)
Posts: 13,120
Originally Posted by Lumpster View Post
By contrast, an AMEX card issued by a 3rd party - e.g. Lloydís Bank - is caught by the EU interchange regulations and therefore the fees paid by the cardholder have been increased, the products have been withdrawn and/or the level of rewards have cut back as the economics have been dramatically changed by the maximum 0.3% interchange rate earned in the post-EU interchange regulation world.
I think that was the reason for Lloyds couldn't/wouldn't give me a Private Banking Amex.
Jimmie76 is offline  
Old Jun 16, 19, 6:12 pm
  #12  
 
Join Date: Aug 2015
Posts: 373
Originally Posted by Lumpster View Post
The BA Amex card is issued by AMEX directly (ie AMEX is both the card issuer and the payment scheme). As such, this type of arrangement falls outside of the EU interchange regulations and therefore the interchange fees paid by merchants remain considerably higher than for comparable transactions made on a typical VISA/MasterCard credit card product issued by a 3rd party. This protection from the EU interchange rules helps AMEX to be able to continue to offer the product with attractive terms whilst keeping it commercially viable.
Pretty sure that's not the case - they lost their final appeal arguing this last year?

See e.g. https://www.headforpoints.com/2018/02/08/american-express-european-court-of-justice-interchange-fees/
hypercrypt likes this.
just_starting is offline  
Old Jun 16, 19, 7:11 pm
  #13  
 
Join Date: May 2006
Location: North Yorkshire, UK
Programs: BAEC
Posts: 66
Ok apologies, it looks like the EU has been continuing to chip away at AMEX via its co-brand cards (including the BA cards) and seeking to bring them into the scope of the regulations. From the link AMEX has obviously been involved in a lengthy legal process with the EU and whilst it looks to have lost its case, it’s not 100% clear that this was definitely the end of the road. That said, AMEX has delayed the EU interchange impacts on itself for a few years versus Visa and Mastercard and so the long-term impacts on its products has probably not fully washed through yet. From most of the articles, they seem to suggest that the BA card with a big annual fee may be commercially viable but the free one is less likely to be so. Also bear in mind that the interchange is only 1 element of a card product’s economics - e.g. annual fee, interest bearing balances, credit losses, fraud losses, card usage outside of the EU where the fees (and hence income) is higher etc.. So it is possible that AMEX may still be able to make the product work commercially whereas the ‘AMEX issued via a 3rd party’ cards were pretty quickly pulled back as soon as the EU regulations initially took effect.

Based on how other airline affinity cards work, I assume that AMEX has a contractual agreement to buy Avios at a fixed price per point with BA and AMEX having joint commitments to generate business etc. and some form of a revenue sharing mechanism - so if AMEX is suffering as the card becomes less profitable, I would imagine BA will also be feeling some of the financial pain at some point.
Lumpster is offline  
Old Jun 16, 19, 7:28 pm
  #14  
 
Join Date: Dec 2016
Programs: BAEC GGL/CR; Hilton Diamond; Mucci des Puccis
Posts: 3,077
Part of the Amex calculation will be about having direct marketing access to high earning customers - the card offers are not provided out of the kindness of their hearts, they are co-marketing deals with usually quite high end high margin retailers.

Similarly Amex will take a cut of the BA spend at the 3 avios rate.The fee is also part of the equation, £195 equates to 19,500 avios, so well over the £10k spend at the 1.5 rate. If someone is just spending £10K on the card to get the 241, then they are also mostly buying the avios at above cost and Amex pocket the transaction fees. It starts becoming more interesting when spend is well beyond £10K, but at that point the individual is high net worth probably and there are other means of getting a payback as discussed.

A 241 needs significant flying spend to be really valuable, and anyway the number of "free" avios generated by this is on the redemption side and nothing to do with Amex, so that will be a cost mostly borne by BA. You can't charge Amex for 140,000 avios because someone has had 15K avios and a 241 on credit card spend and combined them with another 125k to do a redemption.

And of course some people pay interest on credit card debt. Stupid, but true. And God bless these simpletons, I say, because they subsidise everyone else at 22.2% APR or whatever mad amount it is.

We've also seen fees increasing overnight, benefits curtailed, and churning stopped. Expect more of this on other cards.

Having said all this, the writing is absolutely on the wall for extra-curricular earnings, and a couple of years ago the equation was far better for Amex. This isn't bad news, as ultimately everyone pays for these points in terms of higher costs, and the EU rules are very good for consumers. As with any arbitrage opportunity, count on it disappearing tomorrow and max it out today.

Last edited by bisonrav; Jun 16, 19 at 7:49 pm Reason: Getting the numbers right
bisonrav is offline  
Old Jun 16, 19, 9:35 pm
  #15  
 
Join Date: Mar 2013
Posts: 657
Originally Posted by bisonrav View Post
This isn't bad news, as ultimately everyone pays for these points in terms of higher costs, and the EU rules are very good for consumers. As with any arbitrage opportunity, count on it disappearing tomorrow and max it out today.
Iím not an EU resident but my guess is you havenít seen any prices drop since the capping of interchange fees. This benefits the retailers who no longer are paying 1%, 2%, 3% fees vs 0.3% fees today.
nancypants likes this.
jags86 is offline  

Thread Tools
Search this Thread
Search Engine: