Concerns regarding potential reductions in credit card rewards, such as frequent flyer points, have been addressed by a payments expert amidst the Reserve Bank of Australia’s (RBA) proposed measures. The RBA’s consultation paper suggests capping interchange fees on card transactions, which they deem excessively high. These fees significantly contribute to the revenue of banks and card providers, funding perks like loyalty points.
Over one-third of credit card spending in Australia is for cards that accumulate Qantas frequent flyer points. Despite the RBA’s warning that an interchange cap could cost banks nearly $1 billion, experts suggest the rewards programs may not disappear entirely. Brad Kelly, managing director of Payment Services, mentioned that while the cap could reduce profits, credit card perks might adapt rather than vanish.
Kelly indicated that rewards may become funded differently, potentially through direct partnerships between merchants and customers, fostering competition and enhancing perks for cardholders. Consequently, customers might ultimately benefit from these changes.
Meanwhile, money-saving expert Joel Gibson pointed out that consumers often overvalue the benefits of rewards programs, suggesting that reducing these perks might not adversely impact the average consumer. He highlighted that many individuals spend more on fees and interest than they gain from loyalty points, underscoring the complexity of valuing rewards, which can vary significantly based on purchase types.
The RBA’s proposed changes do not affect American Express cards, and the interchange fee adjustments could lead to an estimated revenue drop of around $900 million for banks. As feedback is being collected until late August, further discussions on the implications of these reforms will continue, with an implementation set for July next year. Additionally, the RBA is advocating for greater transparency regarding fees, requiring providers to clearly display wholesale charges.
Overall, while there may be shifts in how credit card rewards are structured, experts believe that essential features and alternative benefits may emerge in response to the changing regulatory landscape.