Co-Author: William Jolly
Canstar Research has crunched the numbers on Business Rewards credit cards to find out what the value of your rewards points are today compared to what they were worth one year ago.
It’s not just your mind playing tricks on you – you’re likely earning fewer reward points per dollar than you were a year or two ago, and it’s mainly because of interchange fees.
Check out the below comparison table to view low rate business credit card rates, sorted by lowest annual fee currently on the market with links directly to the providers.
How much has the value of rewards programs changed?
Obviously, not all business credit card rewards programs are the same, with differences in earn rates and point thresholds. But we can have a look at averages to figure out the differences in value the average customer is getting out of their business credit card rewards.
In 2017, Canstar Research found that for most cards with a yearly spend of under $250,000, the rewards on spending after fees dropped over the last year on average, making finding the right card in this new environment all the more important.
The above graph shows that, assuming you redeem your reward points for cash vouchers or gift cards, and you pay annual fees for both your primary business credit card and a companion card, you could be receiving upwards of $50 less a year in rewards value with the wrong card.
For example, a business that spends $36,000 a year on its rewards card (approximately $3,000 a month), will have earnt almost $57 less in 2017 compared to 2016 in rewards, if these rewards were redeemed for cash or gift cards. A business with a $60,000 annual spend ($5,000 a month) will earn $55 less – hardly much of a difference.
On a more positive note, this graph shows that as your yearly expenditure increases, so too does the return you receive on your rewards program. A business that spends $250,000 on a credit card will get a $1,020 return – a slight $28 increase from before the rewards changes. So business credit cards remain a strong option for businesses that use a credit card frequently and for large amounts.
However, small businesses are unlikely to be spending this much in a single calendar year on their credit card, which makes it all the more important to find a rewards card that can give you a good value rewards program. You can start by looking at the 5-Star Rated cards in this year’s business credit cards research:
What’s caused these changes?
The value of rewards programs on business credit cards has dropped somewhat since this time last year, but what exactly has caused this drop?
To make a long story short, customers are receiving less return on their spending on average because the Reserve Bank of Australia has made it harder for banks to make money on their rewards program, so they compensate by reducing the value that any given customer can receive from their card.
Back in 2016, the RBA released its Review of Credit Card Payments final decisions, which was the culmination of a review that had been going since early 2015.
One of the RBA’s key decisions was that there was little justification for significant interchange fees in mature card systems, a decision which led to caps being placed on interchange fees, which had previously been prone to drifting upwards.
Prior to this change, premium rewards cards attracted fees of around 1.5-1.7%. Now, this fee has been capped at 0.8%.
What are interchange fees?
To put it simply, interchange fees are fees paid whenever you purchase something using a credit card or debit card. It’s like a processing fee paid to your bank by the bank of the business that you made the purchase from.
It may seem odd to you that your bank gets paid whenever you buy something using your business credit card, but the idea is that interchange fees compensate banks for the costs they incur by facilitating electronic payments.
Because banks are now limited in how much they can charge businesses for credit card transactions, and subsequently have taken a hit to revenue, they have turned their eyes to other aspects of the credit card system they can manipulate to make up for lost revenue.
And so they have started tweaking their various rewards program products, reducing earn rates, limiting the businesses at which you could earn extra points and dropping spending caps.
For example, the CommBank Gold Awards American Express Card used to earn businesses two points per $1 spent. While you can still earn two points per dollar spent in supermarkets, petrol stations, overseas merchants and department stores, you will only earn 0.5 points per dollar spent everywhere else.
Likewise, the NAB Qantas Rewards card will now earn businesses 0.75 points per dollar, down from one before the change. For a complete look at how these interchange fee changes will affect your American Express credit cards, check out our in-depth summary here.
How to get the most out of your business credit card
According to a study by American Express, 73% of small- to medium-sized businesses have little to no knowledge of the potential impact that these new rules will have on their business spending. These changes to interchange fees and rewards programs have made it harder to find a business credit card that provides good returns on its rewards program.
To help with this, James Slack, Canstar’s Senior Research Analyst and resident credit card guru, has identified some useful tips for businesses and consumers alike to get the best value from their credit cards:
- Look for a credit card with features you will actually use. There are other benefits to using a business credit card outside of the rewards programs such as travel insurance, extended warranty insurance, price protection insurance and so on.
- Make sure you can pay off the balance on your card at the end of every month. Rewards cards generally have a higher interest rate, so it isn’t worth having one if you can’t pay off your monthly debts. Failing to do so will accrue interest charges.
And above all, work out whether a business rewards credit card is the right one for you. These changes to interchange fees have made it trickier to get worthwhile value, and this can be particularly true for smaller businesses who don’t spend large amounts of money on their rewards cards each year.
There are other types of business credit cards available too, namely Low Rate business credit cards and Frequent Flyer cards. If you think there might be a different business credit card that would provide better value than your current one, you can compare cards with Canstar.