Curve warns Tesco CC users of potential charges

SnowTiger

From an email I've received from Curve:

We’re getting in touch as we understand that Curve customers who have added Tesco Bank Credit Cards to their Curve account have been notified that, after the 24th of October, they will be charged a fee for payments made with this card through Curve. We’d like to explain our understanding of the situation and reassure you that we’re working in your interest, as a valuable customer, to protect your financial freedom.

Who is Tesco Bank charging? How much are they charging?

Tesco Bank have told their customers that they will begin charging a 3.99% fee for cash withdrawals and cash transactions made through Curve to their credit cards from 24th October 2019.

What is Curve doing about this?

As long as this fee is only charged on these transactions, we won’t challenge this decision. Here’s why:

One of our leadership principles at Curve is “obsess about the customer”. To deliver this, it’s important to us that when you use your Curve card, you should always have at least an equal experience (but preferably a better one!) compared with the one you’d get if you’d used any of your cards without Curve. Of course, by adding your cards to Curve, we supercharge them with incredible additional benefits like real-time spend alerts, killer rates abroad and 1% Curve Cash cashback.

But in this case, if you’d used your Tesco Bank Credit Card without Curve, you would have been charged the 3.99% fee. So, it’s acceptable for the card issuer to also charge you this fee when you use your Curve card.

However, we do want to be completely clear that we are committed to ensuring that you won’t be wrongly affected by this change. We are working with our partners to make sure that you will only be charged a fee for exactly these transactions types.

Feels like deja vu.

I haven't received anything from Tesco Bank yet. I stopped using my Tesco credit cards with Curve after the previous kerfuffle.

Terry_Towelling

Don't know that much about Curve but isn't it like a stored-value product? Curve loads up your product with a certain amount of value and allows you to use that value to make purchases. I'm presuming this is how they manage to position themselves as a debit product because you are accessing stored value rather than credit per se.

They allow you to do all this on the condition that you replenish the stored value by allowing Curve to claim funds from whatever you have selected as your underlying card. So, technically, any (yes, any) use of Curve has the potential to be viewed as 'cash' by an underlying credit card issuer.

Tesco has so far chosen to only impose charges for 'cash' withdrawals through Curve. But why would they do that? Curve claims that it is already sending Cash transactions through as Cash, but the fact that very few underlying credit card Issuers treat them as cash must mean that Curve is not using the full (and correct) cash profile when sending cash transactions through.

So underlying issuers will see these as 'purchases' and receive an interchange fee credit for each so-called cash transaction they receive. That is a good income stream for issuers, and, on the face of it, adding an extra 3.99% on top is only going to make the income even better.

However, penalising cardholders with an additional 3.99% cash fee is actually going to deter Tesco cardholders from using their products as underlying cards. Tesco will then lose all income from that stream, so it is pointless and ultimately a bit like cutting off their nose to spite their face.

The fact that this seems to be confined to Tesco, must mean Curve is definitely still using a half-cocked cash transaction profile and, given that Tesco will ultimately lose income as a result of this policy, it can only be a deliberately targeted attack on Curve - but why?

T-G-C

Terry_Towelling wrote: »

Don't know that much about Curve but isn't it like a stored-value product? Curve loads up your product with a certain amount of value and allows you to use that value to make purchases. I'm presuming this is how they manage to position themselves as a debit product because you are accessing stored value rather than credit per se.

They allow you to do all this on the condition that you replenish the stored value by allowing Curve to claim funds from whatever you have selected as your underlying card. So, technically, any (yes, any) use of Curve has the potential to be viewed as 'cash' by an underlying credit card issuer.

Tesco has so far chosen to only impose charges for 'cash' withdrawals through Curve. But why would they do that? Curve claims that it is already sending Cash transactions through as Cash, but the fact that very few underlying credit card Issuers treat them as cash must mean that Curve is not using the full (and correct) cash profile when sending cash transactions through.

So underlying issuers will see these as 'purchases' and receive an interchange fee credit for each so-called cash transaction they receive. That is a good income stream for issuers, and, on the face of it, adding an extra 3.99% on top is only going to make the income even better.

However, penalising cardholders with an additional 3.99% cash fee is actually going to deter Tesco cardholders from using their products as underlying cards. Tesco will then lose all income from that stream, so it is pointless and ultimately a bit like cutting off their nose to spite their face.

The fact that this seems to be confined to Tesco, must mean Curve is definitely still using a half-cocked cash transaction profile and, given that Tesco will ultimately lose income as a result of this policy, it can only be a deliberately targeted attack on Curve - but why?

Aside from the boring UI and lack of control that the application provides over account management, such as having to contact support for a subscription change, the system is relatively simple.

Curve, at this time, other than their in-house rewards system, does not actually store any e-funds to be used for spending. Each time your Curve card is used to make a purchase, whether it be at the card terminal or online, their system charges the underlying payment method in real-time and if successful, approves the transaction on the Curve card. Essentially, there is no visible e-wallet, but the funds are immediately loaded onto Curve upon a transaction attempt and then immediately depleted again to complete that transaction attempt.

After some rioting from a certain company during the early phase, they now also share the MCC of the Curve transaction with the underlying payment provider, which determines whether it is cash or a general purchase. Therefore, it is at the discretion of the card company on whether they define Curve as cash regardless of the MCC, or only charge the fee when an MCC is for a cash transaction or withdrawal.

Terry_Towelling

Just for clarity, I am playing devil's advocate here (to some extent).

Thanks for your clarification - I now have a more complete understanding. So, for Curve to be positioning itself as a debit product, there still have to be funds available to accept that debit - or it would be a credit product. I now get that the underlying product is actually funding the 'invisible' e-wallet first so that the original transaction can access those funds - albeit fairly instantaneously.

So, however you choose to look at it, Curve is still acting as an e-wallet (visible or not) and any transaction processed through it could quite legitimately be seen as a cash transaction.

The reason issuers generally don't see Curve 'cash' as actual cash is because they will have designed their systems to recognise a cash transaction from the Transaction Code and not from the MCC - Curve is clearly using Visa TC05 (and the MasterCard equivalent) to process its cash to the underlying issuers when it should be using TC07.

As I stated before, most cardholders will baulk at the prospect of a 3.99% cash fee and so Tesco cardholders are not going to use Curve for cash at all. That means Tesco will lose all interchange income from Curve cash usage. That is why I cannot understand Tesco's move - unless it is a deliberate attack, or they believe their own cardholders are stupid enough to continue using it for cash.

Given that cash is likely to become a complete 'no-no' through Curve, what incentive is there to continue using it at all? You deny yourself any S75 protection for a start off.

Although my Interchange knowledge is out of date on fee amounts and how they differ between debit and credit products, I still suspect the fee for credit transactions is higher than for debit transactions. That must surely mean that Curve pays away a higher fee to an underlying credit product provider than it receives from the retailer's processor for the initial debit transaction. How can they cover their operational costs, sustain that differential loss and also pay out cashback? Surely, the only way to do this is to 'hang on' to funds received from the underlying issuer for a few days before passing those funds on to the retailer's processor - but that would contradict the contention that the funds are instantaneously depleted from the invisible wallet and could only be achieved if Curve settles with the underlying issuer at first contact (single message processing) and can delay settlement with the retailer side (which is largely out of its control) .

Edit - added text in bold.

Ben8282

If you use a credit card to obtain cash you pay a cash advance fee (commonly 3%0 and interest from day 1.
Unless I am mistaken when you use curve as an intermediary, you pay no fee, have the transaction treated as a purchase for interest purposes and get 1% cashback on top.

Although no doubt beneficial to those taking advantage of it, this is rather cheating the system.

Terry_Towelling

Ben8282 wrote: »

If you use a credit card to obtain cash you pay a cash advance fee (commonly 3% and interest from day 1.
Unless I am mistaken when you use curve as an intermediary, you pay no fee, have the transaction treated as a purchase for interest purposes and get 1% cashback on top.

Although no doubt beneficial to those taking advantage of it, this is rather cheating the system.

Yes, this is the attraction of the facility, and it only works because Curve is not processing transactions to the underlying issuer 100% correctly. That said, the underlying issuers are within their rights to develop their systems to determine a cash transaction simply from the MCC.

As I say though, it would also seem feasible for any underlying issuer to treat any Curve transaction as cash because it is in essence loading up an e-wallet. Tesco's move may just be the thin end of the wedge.

guesswho2000

Terry_Towelling wrote: »

...because it is in essence loading up an e-wallet.

Except it isn't, as you don't load Curve with any money - Curve just processes the payment and charges your card, it's basically a plastic version of PayPal.

Curve DID take topups the second time around that they accepted Amex, but that was a short lived, albeit wonderful, bonus (and only for Amex cards, it's never worked that way with Visa/MC).

In the good old days, they didn't pass on the MCC of the transaction, so the underlying issuer had no way of knowing what you were doing (other that the way Curve described the transaction in the accompanying text). I suspect that would have gone down the "everything will be treated as cash" route in the end, if they hadn't started passing through the MCC, as it was somewhat a free for all.

Terry_Towelling

I understand what you are saying, but, no matter how you choose to view it, Curve is taking value from your underlying card and then sending a like value on to a retailer's processor (via MasterCard). I am not a lawyer (as should be obvious) but it seems likely that a legal definition of the process is akin to paying funds to a wallet and then getting the wallet operator to pay them out again on your behalf. The payment doesn't pass seamlessly through from underlying card to retailer, it is definitely two separate financial movements.

Like I said, earlier, I am playing devil's advocate to some extent but there is scope for it all to fall apart if credit card issuers start to look upon Curve as an e-wallet.

eco_warrior

It’s pretty clear it’s moving funds from account to account and not a purchase.

As an aside, why load an account using a credit card anyway?

Terry_Towelling

eco_warrior wrote: »

It’s pretty clear it’s moving funds from account to account and not a purchase.

As an aside, why load an account using a credit card anyway?

Curve positions itself as a debit card and allows you to withdraw cash (and make purchases) and then have those transactions reprocessed from your Curve account to an underlying credit card (of your choice).

Because Curve does not process cash withdrawals through to the underlying credit card issuer as cash withdrawals, the transactions are treated as purchases and you pay no handling fee.

(From the perspective of an underlying Visa CC) it is all down to Curve's use of Transaction Codes (TCs) and the Merchant Category Codes (MCCs). They can't use MCC 6010/6011 (cash) unless they process as TC07 (which is cash). Instead they use TC05 (Sale/Purchase) and a different MCC that is still cash-related (can't remember which one) - at least I think that's what's happening.

Issuers generally (but not exclusively) trigger cash fees by the TC and not by the MCC, so they see TC05 (Sale) and no fee is levied (generally).

The other side of the argument for Curve (as I've already written) is down to Curve positioning itself as a debit card. As we know, a debit card, by definition, has to take funds from a stored value of some sort (e-wallet, bank account, stored value card etc) or it would be a credit transaction. Curve doesn't provide any value of its own for you to do this; instead it takes value from your underlying product into its systems and then uses that as the stored value for your debit transaction.

It all happens simultaneously (or thereabouts) but it is still two financial movements. For Curve to make any money out of this process (as far as I can determine) they must be clearing immediately on the transaction with the underlying product and hoping that the debit transaction on the retailer's side of the equation takes a day or so longer.

eco_warrior

Terry_Towelling wrote: »

Curve positions itself as a debit card and allows you to withdraw cash (and make purchases) and then have those transactions reprocessed from your Curve account to an underlying credit card (of your choice).

Because Curve does not process cash withdrawals through to the underlying credit card issuer as cash withdrawals, the transactions are treated as purchases and you pay no handling fee.

(From the perspective of an underlying Visa CC) it is all down to Curve's use of Transaction Codes (TCs) and the Merchant Category Codes (MCCs). They can't use MCC 6010/6011 (cash) unless they process as TC07 (which is cash). Instead they use TC05 (Sale/Purchase) and a different MCC that is still cash-related (can't remember which one) - at least I think that's what's happening.

Issuers generally (but not exclusively) trigger cash fees by the TC and not by the MCC, so they see TC05 (Sale) and no fee is levied (generally).

The other side of the argument for Curve (as I've already written) is down to Curve positioning itself as a debit card. As we know, a debit card, by definition, has to take funds from a stored value of some sort (e-wallet, bank account, stored value card etc) or it would be a credit transaction. Curve doesn't provide any value of its own for you to do this; instead it takes value from your underlying product into its systems and then uses that as the stored value for your debit transaction.

It all happens simultaneously (or thereabouts) but it is still two financial movements. For Curve to make any money out of this process (as far as I can determine) they must be clearing immediately on the transaction with the underlying product and hoping that the debit transaction on the retailer's side of the equation takes a day or so longer.

You’re a wiser man than me terry

My point was the credit card industry would now view this as a movement of funds rather than a purchase.