How The RBA’s New Credit Card Payments Regulation Could Affect You

Consumers will benefit from lower surcharges at local corner stores and shops, but may also see reductions in the generosity of rewards programs on some of their credit cards.

In the past 12 months you may have noticed changes to your existing credit card rewards programs.

This is because of changes by the Reserve Bank of Australia (RBA) to be effective from 1 July 2017, which will see credit card interchange fees capped at a maximum of 0.80%. This decision follows a comprehensive review of credit card payments by the RBA in May 2016.

As the main source of funding for banks’ rewards programs, changes to interchange fees have seen many rewards programs become less rewarding as a result. This makes it even more important than ever for customers to compare their options and look for a rewards program that offers outstanding value.

The Canstar website can help you there. The table below shows some of the rewards credit cards available in Australia sorted by our star ratings (highest- lowest) with direct links to the providers website, for cardholders spending $5,000/month on their card and interested in cash and shopping voucher rewards:

Compare Rewards Credit Cards

What are interchange fees?

You might find yourself asking, what exactly are these interchange fees that the RBA is changing?

Interchange fees are ultimately fees paid by the merchant’s bank to the cardholder’s bank (your bank) on every transaction for the use of card schemes such as MasterCard, Visa, and American Express.

These fees form part of the banks’ revenue, and in turn they are used to fund reward programs for some cardholders.

But they also increase payment costs for merchants. Because consumers expect to be able to pay with their card, merchants may be unable to decline the use of that card, and that’s where the incentive arises for card schemes to raise interchange rates.

“Merchants that do not benefit from ‘strategic’ rates face much higher interchange rates and payment costs than ‘preferred’ merchants, and may have no transparency over the cost of particular transactions,” reports the RBA.

This is what the RBA is trying to control, as they expect the changes will “significantly reduce the extent to which small- and medium-sized merchants are disadvantaged relative to preferred merchants in the MasterCard and Visa interchange systems”.

Compare Rewards Credit Cards

What are the credit card surcharge changes?

Changes to interchange fee standards

The RBA uses weighted-average benchmarks as the primary element of interchange regulation, and in the new changes this will be supplemented by caps on any individual interchange fee within a scheme’s schedule.

We’ve written previously about the new weighted-average benchmarks, which are (effective 1 July 2017):

  • Credit Cards: 0.50%
  • Debit Cards: 8 cents

But the RBA is also now applying a cap to all surcharges, restricting credit card interchange fees to not exceed a maximum of 0.80%.

A key outcome from the RBA’s new rules is that the interchange fee standard will be modified in such a way as to make American Express companion cards subject to the same interchange fee regulation that applies to MasterCard and Visa systems.

These changes do not apply to directly-issued American Express credit cards, but only to American Express companion cards issued to you by other banking institutions.

The Big Four banks are known for offering American Express companion cards, where the bank issues both an Amex card together with a MasterCard or Visa card to the same account, and you earn more rewards on the AMEX card.

However, due to the cap on interchange fees we have seen ANZ cease their commercial partnership with American Express, and the bank will no longer issue any American Express companion cards. Customers will not be able to use ANZ branded Amex cards after 5 August 2017, with only their Visa card remaining.

NAB, Westpac, and Commonwealth Bank have also all cut the earn rates on their American Express companion cards, according to Canstar’s Research team, making their rewards less generous because customers earn less points by using those cards.

Compare Rewards Credit Cards

How will the interchange fee changes affect my credit card?

It is important to note that these changes should see little effect on interchange payments on standard consumer credit cards, according to the RBA.

The main change for consumers will be seen on premium cards and companion cards, in the generosity of rewards programs, while some adjustment in annual fees on these cards is also possible.

The RBA says these reforms will likely put downward pressure on the prices of goods and services for all consumers, and will make it more possible for new payment methods to emerge as customers are less incentivised to use large card schemes.

Compare Rewards Credit Cards

Tips from the Canstar Research Team

As Senior Research Analyst at Canstar, James Slack is our resident credit card guru who strives to save people from being ripped off or caught in a credit card trap.

If you are a bit confused by all these RBA changes and what you should be looking out for, check out a few handy tips from James and our Research team, to get the best value from your credit card:

  • Work out whether a rewards credit card is the right choice for you – it’s all based on the amount that you spend on the card. It’s generally not worth it to pay a surcharge just to get the rewards points. If you are being charged 1 or 2% to use a credit card and think it is okay because you are going to earn points, the reality is that the points are probably worth less than the 1 or 2% fee that you are being charged. Investigate the other types of credit cardsbefore choosing one.
  • If you have a rewards credit card, you need to understand whether you are getting value for money out of the card. Do the rewards that you earn during the year actually pay for the card, and then give you some benefits as well?
  • You need to pay the balance at the end of the month to avoid paying interest charges, because the value you get from a rewards program is never going to outweigh the cost of interest charges if you constantly fail to pay the full amount off your card.
  • Look for a credit card with features you will actually use. There are benefits to using a credit card outside of the rewards programs: travel insurance, extended warranty insurance on things you buy on the card, price protection insurance, and others.

Compare Rewards Credit Cards

Credit card changes so far

Canstar’s Research Team have examined changes to credit cards in Australia since the RBA made their announcement.

The following information lists credit card changes that have either already taken affect or have been announced:

ANZ

Points per $1 spend (on standard purchases)
  Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Rewards 0.75 uncapped 1.5 uncapped 1 up to $1,000/month then 0.5 Existing customers can use Amex until 5th August, removed thereafter.
Rewards Platinum 1 uncapped 2 uncapped 1.5 up to $2,000/month then 0.5
Rewards Travel Adventures 1 uncapped 2 uncapped 1.5 up to $2,000/month then 0.5
Rewards Black 1.25 uncapped 3 uncapped 2 up to $5,000/month then 1
Frequent Flyer (Qantas) 0.5 capped at $3,000/month 1 capped at $3,000/month 0.5 up to $500/month then 0.25
Frequent Flyer Platinum (Qantas) 0.5 capped at $6,000/month 1.5 capped at $6,000/month 0.75 up to $3,000/month then 0.5
Frequent Flyer Black (Qantas) 0.75 uncapped 1.5 uncapped 1 up to $7,500/month then 0.5

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Citibank

Points per $1 spend (on standard purchases)
  Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Signature Rewards 1.5 capped at $20,000/month 1 uncapped
Prestige Rewards 2 capped at $100,000/month 1 uncapped
Qantas Signature 1 up to $3,000/month then 0.5 capped at $10,000/month 0.5 capped at $20,000/month
Qantas Prestige 1 up to $100,000/month 0.5 uncapped

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Other changes to Citibank Signature Rewards and Prestige Rewards

  • New opportunities to earn extra points on dining, hotel, petrol, supermarket, retail and international spending.
  • More Citi Rewards points required to transfer to airline programs.

Other changes to Citibank Qantas Signature and Qantas Prestige

  • New opportunities to earn extra points on dining, hotel, petrol, supermarket, retail and international spending.

Commonwealth Bank

Points per $1 spend (on standard purchases)
  Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Diamond 1.25 capped at 1,000,000/year 3 uncapped No change 0.5 points uncapped
Platinum 1 capped at 150,000 points/year 2.5 up to 150,000 then 1 capped at 250,000 points 0.5 points uncapped
Gold Awards 1 capped at 75,000 points/year 2 up to 75,000 points then 1 capped at 125,000 points 0.5 points uncapped
Standard Awards 1 capped at 50,000 points/year 1.5 capped at 50,000 points 0.5 points uncapped

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Other changes to Commonwealth Bank issued Amex cards

  • Spending on Amex at supermarkets, department stores, petrol stations, and on overseas spending will earn extra points.

NAB

Points per $1 spend (on standard purchases)
Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Qantas Rewards Premium 0.5 capped at $25,000/month 1 capped at $25,000/month 0.5 capped at $5,000/month 1 capped at $5,000/month
Qantas Rewards 0.5 capped at $20,000/month 0.75 capped at $20,000/month 0.5 capped at $3,000/month 0.75 capped at $3,000/month
Velocity Rewards Premium 0.5 capped at $25,000/month 1 capped at $25,000/month 0.5 capped at $5,000/month 1 capped at $5,000/month
Velocity Rewards 0.5 capped at $20,000/month 0.75 capped at $20,000/month 0.5 capped at $3,000/month 0.75 capped at $3,000/month

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Virgin Money

Points per $1 spend (on standard purchases)
Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Velocity Flyer 1 up to $1,500 then 0.5 uncapped 0.66 up to $1,500/month then 0.5 uncapped
Velocity High Flyer 1 up to $10,000 then 0.5 uncapped 1 up to $8,000/month then 0.5 uncapped

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Westpac

Points per $1 spend (on standard purchases)
Before After
Product Visa / MasterCard American Express / Diners Club Visa / MasterCard American Express / Diners Club
Altitude Black 1.25 uncapped 3 uncapped No change 2.5 uncapped
Altitude Black – Qantas 0.625 uncapped 1.5 uncapped No change 1.25 uncapped
Altitude Platinum 1 capped at 7,500 points 2 capped at 7,500 No change No change
Altitude Platinum – Qantas 0.5 capped at 3,750 points 1 capped at 3,750 No change No change
Altitude Rewards 1 capped at 5,000 points 2 capped at 5,000 points No change No change
Altitude Rewards – Qantas 0.5 capped at 2,500 points 1 capped at 5,000 points No change No change

Source: www.canstar.com.au Changes have either already taken affect or have been announced.

Other changes to Westpac issued Amex cards

  • Amex spending at the Australian Tax Office no longer earns points.

Although some rewards are slashed, customers can benefit from surcharge changes

Another change to card payment regulations will be to the surcharge standards, which will be a welcome move for consumers missing out on rewards. This change will see that merchants have the right to surcharge for payment cards, but also provide transparency by ensuring that consumers are not surcharged excessively.

The ACCC has been tasked to enforce the RBA’s changes in order to protect consumers and ensure businesses are not ripping customers off with excessive surcharges.

A major win for consumers from this change is that airlines are no longer allowed to charge a flat fee (fixed rate) for people to use a credit card. The airlines have all had to lower their fees to reflect the cost of accepting that particular payment method, according to Canstar’s Research team.

The RBA’s surcharge changes will take effect in two stages: large merchants have been subject to the new rules as of 1 September 2016, while all other merchants will comply from 1 September 2017.

Compare Rewards Credit Cards

Share this article

Enjoyed reading this article?

Sign up to receive more news like this straight to your inbox

By subscribing you agree to the Canstar Privacy Policy.

Thanks for signing up!

Good things are coming your way.