A payments expert has watered down fears the Reserve Bank’s proposed ban on card surcharges and accompanying cap on interchange fees will force banks to roll back credit card perks like frequent flyer points.
The RBA’s consultation paper on surcharges suggests capping the maximum interchange fee banks and service providers charge for card transactions.
It said the current fees paid by businesses to card providers are “too high”.
Those fees form large parts of bank and card provider revenue streams and pay for credit card perks like frequent flyer points.
The rewards are incredibly popular – more than a third of credit card spending in Australia is done on Qantas frequent flyer points-earning cards alone, according to the airline.
The RBA itself warned the programs could be scaled back in response to an interchange fee cap, which could deliver a hit of almost $1 billion.
It is important to note that American Express credit cards do not fall under the RBA’s remit and won’t be impacted.
“Issuers are expected to experience a reduction in interchange revenue of around $900 million under the preferred package and $800 million under the alternate option,” its consultation paper states.
“Some issuers may choose to increase cardholder fees or reduce benefits such as rewards points, particularly on credit cards, to boost their profitability in response to reductions in interchange settings,” it adds.
Payment Services managing director Brad Kelly told 9news.com.au the interchange fee is the “holy grail” for financial institutions.
He said the proposed cap could have a flow-on impact for customers but doesn’t expect perks like Qantas points will be stripped back.
“What it will mean is that revenue bucket is just not big enough anymore to pay for rewards, so they’re going to have to work out a different way to pay for it,” Kelly explained.
“Potentially what will happen is is that rewards cards will evolve. It’s not the end of frequent flyer points on rewards cards. Far from it.”
Kelly said reward points may be offered to customers directly via merchants instead.
Because this, it could result in increased competition and better perks for spending money on credit cards.
“The customer could be better off,” Kelly said.
“I also think there’s opportunity for alternatives, where you still get your rewards per spend, but it’s handled differently.”
Money saving expert Joel Gibson said customers shouldn’t be wary of losing perks.
Instead, he warned other key features like scam protection could be impacted.
“Reducing fraud protection would be a serious downside, for example,” he said.
“But reducing the value of rewards programs would probably leave most people better off in my view.”
Gibson said the average punter overvalues rewards.
The average credit limit in Australia is $10,439, which isn’t a lot if you’re hoping to score business-class flights on points alone.
“Most of us pay more in annual fees, merchant fees and interest than we get back in points, even if we don’t realise it,” he said.
“And most of us have no idea what a point is worth and the rewards programs make it hard to work out by giving them different values for different purchases.”
None of the major banks approached by 9news.com.au said whether or not they are considering reducing card perks in response to the RBA reforms.
It has been suggested Apple Pay may be under threat if the surcharge ban goes ahead.
Kelly said he doubts any bank would risk such a huge chunk of their transactions.
“Apple Pay now represents about 40 per cent of card payments in Australia,” he said.
“There’s no way [a bank] would switch off 40 per cent of its payment traffic.”
A feedback window on the RBA’s proposals is open until August 26 this year, before the reforms are finalised.
They are scheduled to come into effect next July.
The RBA has also proposed more transparency around fees by requiring providers to display their wholesale charges clearly.
9news.com.au has contacted the Australian Banking Association for comment.
