Australians Wave Goodbye to Lavish Credit Card Perks

  • Points programs hit as central bank caps transaction fees
  • Australian shoppers must now spend more to earn rewards

Australians accustomed to jetting off to Bali using reward points earned on their credit cards may need to open their wallets to pay for the next holiday.

A new cap on credit-card transaction fees that comes into force on July 1 means there’ll be less revenue available to fund lavish award programs.

Australia & New Zealand Banking Group Ltd., which issues around a fifth of the nation’s credit cards, announced earlier this month it will stop offering higher-points earning American Express cards alongside its Visa cards. Other lenders are likely to follow suit in scaling back rewards, according to online comparison site Mozo.

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“We’ve seen card providers slash points-earning rates, introduce more restrictive points caps and, in the case of ANZ, get rid of higher earning American Express companion cards,” said Kirsty Lamont, a spokeswoman for Mozo. More providers are likely to do the same later this year, she said, continuing a trend of rewards programs declining in value.

The country’s most popular credit cards now require customers to spend an average of A$20,968 ($15,870) to access A$100 worth of rewards, up from A$19,547 in 2015, according to Mozo.

It’s a similar picture in Europe, where a December 2015 cap on interchange fees means “credit cards have become less profitable,” Daniel Dawson of Retail Banking Research in London said via email. Banks there are talking about increasing annual fees paid by consumers as well as looking at making merchants at least partially fund reward schemes, he said.

Retailers have campaigned for years against interchange fees, saying that they push up the final costs of goods and services, and amount to a hidden charge on consumers. Card companies insist that the fees ensure that retailers make a fair contribution to the underlying costs of electronic payment systems.

Prompted by concern that charges may drift upward and that smaller merchants could face higher costs than bigger operators, the Reserve Bank of Australia began regulating interchange fees in 2003. In November, it announced a further tightening intended to level the playing field.

From July, credit-card interchange fees, which can currently be as high as 2 percent, will be capped at 0.8 percent. The rules will also be applied to American Express companion cards.

In addition to cutting its partnership with American Express, ANZ Bank has tweaked loyalty programs on its cards -- replacing reward points with gift vouchers in some instances, and amending rates at which rewards can be earned, including frequent flyer points.

ANZ confirmed in an emailed statement it was making the changes in response to the new rules on interchange fees. American Express said it understood ANZ’s decision in the current environment and would work to support other issuers.

Commonwealth Bank of Australia said it was always trying to ensure its reward scheme was useful and that customers also valued other features such as travel insurance. National Australia Bank Ltd. said it had recently launched a proprietary rewards program to give customers “greater choice and flexibility.” Westpac Banking Corp. declined to comment.

The challenge for the banks will be to retain affluent -- and hence valuable -- credit card consumers who have grown accustomed to the generous reward programs. A Visa Inc./RFI survey in December found 62 percent of those questioned were unconvinced alternative benefits -- such as retail discounts -- would be a “fair replacement”.

While credit-card use in Australia is growing faster than Europe, the nation trails the Asia-Pacific where a rising middle class is fueling increased transactions, according to data from Retail Banking Research.

Consumer advocates stress a need to focus on the bigger picture. “Reward points were being subsidized by an inflated interchange system,” Erin Turner, head of policy at Australian consumer advocacy group Choice said by telephone. “High cost reward schemes benefit a small subset of consumers while driving up costs for all.”

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