Credit card rewards schemes devalued as interchange fee changes come into effect

Kelly Emmerton

20 Jun 2017

redactor/hero-images/31/interchange-fees_content.jpg

Key points

  • RBA regulations capping interchange fees at 0.8% come into effect July 1

  • Reduced profits for banks mean spenders will see rewards value drop

  • Lower earn rates, stricter points caps and higher annual fees all on the cards

With the RBA’s interchange fee regulations set to come into effect on July 1, the value of credit card rewards schemes may be about to tank.

In May 2016, the RBA announced new regulations which capped interchange fees charged on Australian-issued Visa and Mastercard credit cards at 0.8%, and which are about to come into effect on July 1 2017.

While this is good news for merchants - who will no longer pay hefty fees for accepting credit cards over the counter - it means banks make less profit from credit card transactions. The likely remedy to what could be a blow to the banks’ bottom lines? Reduced value on rewards credit cards.

A number of major players, including all four big banks, began to slash the value of their rewards schemes after the RBA’s changes were announced. Now, as the July 1 deadline looms, we’re likely to see more credit card providers follow suit.

Compare rewards credit cards - rates updated daily

  • Promoted

    American Express Qantas Discovery Card

    Receive up to 1.75 Qantas Points for every $1 spent on Card purchases (T&Cs apply). No annual fee for the life of the card. Credit Card Provider of the Year in the Mozo Experts Choice Awards 2019.^ T&C’s apply

    Qantas Frequent Flyer

    $0

    No current offer

    0.75 points uncapped

    • -

    • 20.74% p.a.

    • No current offer

    • 44

    • 3.00%

    • $30.00

    • 0.75 points per dollar on Amex, uncapped

    • Never

    • No current offer

    • 8,000 points

    • 110,400 points

    • 18,690 points

    • • Purchase Protection

      • Account alerts by SMS

    Read our Mozo Review to learn more about the Qantas Discovery Card

    Details Close

  • Promoted

    David Jones American Express Card

    Receive 15,000 Membership Reward Points or 7,500 Qantas Points when you are approved and spend $750 at locations excluding David Jones on your new Card within the first three months. Available to new David Jones American Express Card Members only.

    Membership Rewards

    $99

    15,000

    1 point uncapped

    • -

    • 20.74% p.a.

    • No current offer

    • 44

    • 3.00%

    • $30.00

    • 1 point per dollar on Amex, uncapped

    • Never

    • 15,000

    • 15,600 points

    • 239,200 points

    • 13,500 points

    • • Purchase Protection

      • Account alerts by SMS

    Read our Mozo Review to learn more about the American Express Card

    Details Close

  • Promoted

    American Express Qantas Ultimate Card

    Receive 55,000 bonus Qantas Points when you apply online, are approved and spend $3,000 on your new Card within the first 3 months. Credit Card Provider of the Year in the Mozo Experts Choice Awards 2019.^ T&C’s apply

    Qantas Frequent Flyer

    $450

    55,000

    1.25 points uncapped

    • -

    • 20.74% p.a.

    • No current offer

    • 44

    • 3.00%

    • $30.00

    • 1.25 points per dollar on Amex, uncapped

    • Never

    • 55,000

    • 8,000 points

    • 110,400 points

    • 18,690 points

    • • Travel Insurance

      • Purchase Protection

      • Account alerts by SMS

    Read our Mozo Review to learn more about the Qantas Ultimate Card

    Details Close

  • Promoted

    American Express Explorer® Credit Card

    Generous perks include a massive 50,000 bonus points when you apply online and meet the spend criteria. New card members only. Receive $400 Travel Credit each year, 2 complimentary Amex Lounge passes and more! Credit Card Provider of the Year in the Mozo Experts Choice Awards 2019.^ T&C’s apply

    Membership Rewards

    $395

    50,000

    2 points uncapped

    • -

    • 20.74% p.a.

    • No current offer

    • 55

    • 3.00%

    • $30.00

    • 2 points per dollar on Amex, uncapped

    • Never

    • 50,000

    • -

    • 212,000 points

    • 20,000 points

    • • Travel Insurance

      • Extended Warranty

      • Purchase Protection

      • Account alerts by SMS

    Read our Mozo Review to learn more about the Explorer® Credit Card

    Details Close

  • Promoted

    American Express Platinum Edge Credit Card

    Receive a $200 Travel credit each year (T&Cs apply) & earn up to 3 Membership Points per dollar spent. Credit Card Provider of the Year in the Mozo Experts Choice Awards 2019.^ T&C’s apply

    Membership Rewards

    $195

    No current offer

    1 point uncapped

    • -

    • 20.74% p.a.

    • No current offer

    • 55

    • 3.00%

    • $30.00

    • 1 point per dollar on Amex, uncapped

    • Never

    • No current offer

    • -

    • 212,000 points

    • 20,000 points

    • • Travel Insurance

      • Extended Warranty

      • Purchase Protection

      • Account alerts by SMS

    Read our Mozo Review to learn more about the Platinum Edge Credit Card

    Details Close

Mozo Data Manager, Peter Marshall, said there are three main ways banks will be likely to recoup the lost profits from interchange fees; reducing points earn rates, introducing stricter caps and expiry dates on points, and hiking annual fees.

Reducing the amount of points earned per dollar is one of the more common strategies. Credit card giant Citi dropped the earn rate on five of its cards, while CommBank, NAB and Westpac reduced the earn rate on AMEX companion cards - by up to 2.5 points per dollar spent, in one case.

“Spenders who rely on their AMEX companion card to bump up their rewards earn have been left out in the cold a bit, but on the other hand, cards issued directly by AMEX were some of the only options that saw points earn rates increase this year,” Marshall said.

RELATED: Credit card providers shaking up the way you pay with interest free offers

ANZ also scaled back its rewards program considerably, ditching AMEX companion cards all together and introducing new points caps and tiered earning.

For example, the ANZ Rewards card used to earn cardholders 1.5 points per dollar on AMEX and 0.75 points per dollar on Visa, uncapped. Now, the AMEX companion card is no more, and shoppers can earn 1 point per dollar on Visa, up to $1,000 per month, and 0.5 points per dollar on spends after that threshold.

Suncorp and Virgin Money also introduced lower points caps. Suncorp capped points on its Clear Options Platinum Qantas card at $8,000 a month, while Virgin Money Velocity High Flyer cardholders will now earn 1 point per dollar up to $8,000 per month, down from a cap of $10,000 per month (still with an earn rate of 0.5 points per dollar afterward).

“Points caps and tiered earn rates like this mean cardholders need to be aware of how much they spend each month. If you usually spend under the monthly threshold, then it might not bother you. But if you’re a big spender, the fact that you’ll be losing out on rewards value on a portion of your spend each month is something to consider,” said Marshall. 

RELATED: New Qantas rewards credit card: all you need to know about points, fees and bonuses

The annual fee was also adjusted on 14 credit cards this year and of those, 8 were increases while in 6 cases the fee was reduced.

“Some card providers may be raising annual fees to make up for lowered interchange profits, but it’s by no means a market-wide trend,” said Marshall.

“The thing to keep an eye on is whether you’re paying a higher annual fee while receiving the same or lesser value from your card. If so, it might be time to look for a new card.”

Want better value from your plastic? Make sure you’re carrying a rewards card that will net you the best bang for your buck by comparing options using our Rewards Revealer tool.

Mozo may receive advertising fees from the financial institutions, issuers of financial or credit products and third party advice providers that are shown on this page. These fees are based on a cost per click, cost per acquisition, or a fixed fee.