Millions of Australians with rewards credit cards could miss out after July 1, when interchange fees will officially be capped by the Reserve Bank at 0.8%.
This will severely curtail a $2 billion revenue source for lenders, some of which have been charging up to 3% of the value of credit card transactions.
Interchange fees are charged by a credit card issuer to the retailer’s bank at the point of sale.
A portion goes towards covering the EFT costs; however, the fees are often a lot higher than the actual cost.
Most rewards programs are funded by money collected from interchange fees, and that’s all about to come to a grinding halt.
The credit card market is already being shaken up in anticipation of these changes, with CBA and Citi announcing they are paring back their rewards programs, while ANZ has axed its joint credit card with Amex.
Come July 1, it’s expected other lenders will follow suit as the revenue stream dries up.
Capping interchange fees is a win for common sense.
For years, retailers complained that the exorbitant fees were ultimately passed onto the consumer, either in excessive credit card surcharges or higher prices.
This new cap, along with the cap on credit card surcharges introduced last year, creates a much fairer, more transparent playing field.
Anyone with a credit card, however, could see the value of their rewards program take a nosedive. For example, providers could reduce the number of points you earn per dollar spent, increase the amount of points you need to get rewards, increase annual fees, cap the number of points you earn at a particular rate and offer retail discounts instead of the more popular frequent flyer points.
This is probably a good opportunity to sit down and work out whether your card provides value for money.
Rewards cards often have extra costs attached, such as a high annual fee or a high interest rate, so it’s worth seeing what other rewards programs are offering, or switching to a low-rate card without the hidden fees and charges.