The Reserve Bank of Australia will remove surcharging on debit, prepaid and credit cards on the designated EFTPOS, Mastercard and Visa card networks, while also lowering the cap on interchange fees paid by Australian businesses. The changes are expected to kick off on 1 October 2026.
While the removal of surcharges is generally good news for the public on the face of it, the overall package of changes means that reward points cards will likely drop in value.
When interchange revenue falls, the profit available to support point earn rates, sign-up bonuses and premium benefits is also reduced.
What the RBA’s decision means for you
By lowering the interchange cap to 0.3 per cent on consumer credit cards, the RBA has materially reduced interchange funding. In fact, it estimates that over $910 million of revenue will be lost.
This is expected to prompt a significant recalibration of reward programs over time, likely with a reduction in the points earned and some benefits associated with the card. The hardest impact would most likely be felt in the points-earned-per-dollar rate or in sign-up bonuses. Annual fees may also go up.
Business cards will remain at the 0.8% interchange fee cap, so we don’t expect as much movement in that sector in terms of loyalty points and card perks.
What about American Express?
In the short term, American Express cards may become relatively more attractive in the market. Unlike Visa and Mastercard, Amex is not subject to the RBA’s interchange caps because it operates a ‘closed-loop’ system and issues its own cards.
If banks respond to lower interchange revenue by reducing point earn rates or tightening benefits on Visa and Mastercard products, American Express cards may temporarily offer comparatively stronger points earn, larger sign-up bonuses or richer benefits.
Amex’s Membership Rewards points are also flexible and can be transferred to many airline and hotel partners.
But in the long term, American Express will most likely reduce its merchant fees to remain competitive in the markets. Therefore, we could also see Amex gradually trimming benefits for its Card Members.
It’s an absolute fabrication to imply that banks are in any way out of pocket because of these changes. There was no adverse impact on rewards nor their ordinary costs of doing business before most merchants started violating consumers with surcharges left-right-and-centre after the pandemic.
The annual/monthly fees we pay for reward cards is exactly what funds the programs (plus a juicy margin for the banks). This has nothing to do with merchants jumping on the bandwagon to rip-off consumers while they can. Surcharges are a scourge on all consumers and this ban will finally remove longtime perpetrators like utilities and airlines who’ve been surcharge ING with reckless abandon for decades.
Good point made about Amex though, will be an interesting opportunity for them to lead the market in this area, if they play their cards right.
Sorry, your comment misunderstands the situation.
You’re right that banning surcharges doesn’t have a direct impact on the banks. But you’re incorrect in your assumption that these changes have no impact on the banks. The biggest impact will be the reduction of the interchange fee from 80 basis points to 30 basis points. Basically a 60%+ decline in the revenue they make from interchange. If you think that bank revenue for credit card comes exclusively (or largely) from annual fees, you’re dead wrong. Annual fees make up only around 12-14% of credit card revenue. Interest rates on revolving balances make up ~50%. Those will largely be untouched.
But interchange makes up 33% of revenue. That’s a pretty significant portion and eliminating ~20% of the total revenue (33% x 62.5%) of any business would impact profits.
The cut in the interchange fee is a huge impact for the point-collecting sector. It impacts banks, it’ll impact Qantas and Virgin (and other airlines but to a lesser extent), the merchants who partner with Qantas/Virgin and definitely consumers who collect points. Anyone who is a serious point collector will generally be worse off. From a system/macro perspective, not necessarily worse – basically point collectors have been subsidised to date by those who aren’t.
The short version is – this is a bad outcome for anyone who likes collecting points, using them for flights, etc. (A lot of the audience of this website). Some carve-outs for Amex for the meantime and complete carve-out for business cards. For the system as a whole, it may be positive and you can look forward to saving credit card surcharges for your transactions.
I have already received an email from AMEX with new limitations introduced for lounge access, and some other travel partners. Coincidence? Maybe… not likely.
Say I spend 2000/month on my credit card at an average of 1.5% card surcharge. Over an annual basis I’m saving $360/year. If you’re someone who’s hitting the spend amount for the HSBC star alliance card of $50,000/yr you’re now saving $750/yr in fees. I can’t see how this is a bad thing…
Eliminating surcharges is a good thing – however, it may result in merchants increasing the cost of goods to bundle the fee in, as they’ll still be charged merchant fees. By lowering interchange fees, the banks will likely reduce merchant fees to mitigate that, but then the follow-on effect is that our reward programs will likely be cut back.
I suspect that the 37% (at time of writing) who “view the RBA changes as positive for me overall” are focusing on surcharges and don’t understand the impact of the slashing of the interchange fee. It’s going from 0.8% to 0.3%. The interchange fee is what banks and credit card providers make per dollar transacted on the card. It adds up to a lot of money (33% of all the revenue banks make from credit cards).
In the US, interchange averages around 2%, up to 3% for premium cards. Hence, rewards are lucrative for consumers.
In Europe, there is almost no real meaningful “rewards” sector. Credit cards don’t make enough money for financial institutions for them to fund generous rewards. The level of interchange in Europe? 0.3% – the same as where Australia will be after the RBA changes go through.
As I mentioned in another comment – from a financial system perspective, this is not necessarily a bad thing. From a points collector’s perspective, this is a bad outcome. Most likely there will be a significant reduction in the value of points earned, lowering of point caps and reduction of point sign-on bonuses as noted in the article.
Either 37% of respondents have 1) missed this or 2) they’re casual collectors/uninterested in points (but that would have seemed an unusually high proportion for a website called Point Hacks).
> “Either 37% of respondents have 1) missed this or 2) they’re casual collectors/uninterested in points (but that would have seemed an unusually high proportion for a website called Point Hacks).”
No, you missed option: 3) they do understand, and know that elimination of reward points is actually a good thing over all by reducing costs. Think of all the IT spend that will be removed if banks and airlines don’t have to track reward points and can just give the best price. Think about why they created rewards programs in the first place, at significant cost, it is not for the benefit of customers.
I guess I better duck for cover making such comment on Point Hacks.