Last week the RBA released a review of how the credit card market has changed in the last decade.
Back in 2002, the RBA restricted the interchange revenue that card issuers could earn on each transaction. Their review outlined how this has cut value of credit card rewards schemes. Well I think that was pretty obvious some time ago.
Of course the reforms were about making the pricing of credit cards more aligned to the cost, to bring down the cost to business realtive to other forms of payment. And it’s certainly done that.
But what was really interesting in the RBA paper was the flow-on effects from the way Visa and Mastercard have since adjusted the interchange rules for different types of cards. It’s now the case that your bank will earn on average twice the interchange revenue when you use a Platinum card than if you had taken a standard card into the same store and bought the same thing.
So of course this has meant that the banks have been pushing Platinum cards for a while.
- Our database actually lists more Platinum rewards cards than standard rewards credit cards.
- There are a number of ‘pretend’ Platinum cards on the market – ones that don’t offer any rewards points at all, and others that offer rewards but have stripped away the traditional concierge services and the like.
- All of the biggest balance transfer offers this season have been all on Platinum cards.
- And many card issuers have been through systematic programs to upgrade existing customers onto Platinum. Sometimes very crudely: I know of one issuer who retired a no-fee gold card product and moved customers up to a Platinum card, even though the Platinum card had an $80 annual fee, and has had quite a few complaints about it.
And that’s the catch for consumers; they need to do their homework to judge whether the extra benefits of the Platinum outweigh the extra fee. I’ll give you an example. We feature a tool on our site where people can do that, the Rewards Revealer. And it reveals that for some cards, the retail value of the rewards you can earn on the Platinum card less the annual fee, is less than what you get on the standard version of the same card unless you pay more than $35,000 on it. So it really is important for consumers to do those calculations.
For retailers, moves towards higher interchange cards may end up putting pressure on the acquiring business of the banks and may lead to a rise in merchant service fees that businesses pay. This may come on top of upcoming restrictions on credit card surcharging, which is something the RBA has already proposed to stop some of the very blatant profiteering we’ve seen in some industries – airlines for example.