The Reserve Bank of Australia (RBA) will get rid of surcharges on debit and credit cards and lower the cap on interchange fees paid by Aussie businesses from October. The reforms are expected to save consumers $1.6 billion in surcharging fees per year, but they are also set to “materially impact” the credit card perks that banks offer and drive up annual fees.
The interchange cap will be dropped from 0.8 to 0.3 per cent for domestic-issued consumer credit card transactions, which is estimated to save businesses $910 million per year. Banks typically use interchange fees to pay for points and other benefits and perks attached to reward cards.
Frequent flyer expert Adele Eliseo of The Champagne Mile told Yahoo Finance the benefit consumers got from simpler, surcharge-free pricing would be offset by weaker rewards and higher card fees.
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“We can expect to see shrinking sign-up bonuses on rewards cards, fewer points per dollar, tighter caps on earning rates and weaker transfer rates into airline programs,” she said.
“Some cards will lose perks like lounge passes or insurances, and we can expect to see banks increase annual fees and interest rates to make up the difference.”
Points Hacks editor Brandon Loo expects the changes will materially reshape the economics of credit card rewards.
“Interchange fees are the engine room of Australia’s credit card rewards system, often funding their rewards and benefits,” he said.
“History and other overseas markets shows that when interchange revenue is reduced, the level of rewards that card issuers offer typically follows.”
Loo also expects banks will respond with lower earn rates and sign-up bonuses, along with banks potentially hiking annual fees to compensate for lost revenue.
In the short term, Loo said American Express cards may become more attractive as, unlike Visa and Mastercard, it’s not subject to the RBA’s interchange caps. However, he expects it will likely reduce fees to remain competitive in the future too.
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The RBA has introduced a package of reforms that will remove surcharges on debt, prepaid and credit cards on card networks, including eftpos, Mastercard and Visa.
RBA governor Michele Bullock said the review found card surcharging “no longer works as intended”.