Aussie banks rethink credit card points, fees ahead of RBA reform

Banks across Australia are reviewing their entire credit card portfolios in preparation for the Reserve Bank’s cuts to credit card ‘interchange fees’ from July 1 2017, which are shaping up to have a strong impact on credit card frequent flyer points and associated benefits.

Capping these fees at 0.8% of a transaction’s value, the changes will see many businesses paying less to process Visa and MasterCard credit card payments, along with those from ‘companion’ American Express credit cards issued by ANZ, Commonwealth Bank, NAB and Westpac.

But in turn, the banks which issue these cards to customers will earn significantly lower revenues from each transaction, meaning there’ll be less money available to the banks to spend on cardholder perks like frequent flyer points and airport lounge access.

Read: How the new RBA interchange cap will affect credit card frequent flyer points

Australian Business Traveller reveals some of the changes being considered by the nation’s major banks and how they stand to affect credit card users if implemented.

RBA cuts to credit card interchange fees: what could happen?

As banks will soon earn no extra revenue when a customer uses a companion AMEX card to pay for a purchase over a regular Visa or MasterCard, there’s little incentive for Big Four Banks to continue issuing these cards at all.

Accordingly, Westpac is seriously considering abandoning American Express companion cards entirely – or in the alternative, retaining them, but charging cardholders an additional annual fee for the privilege.

What’s more, the bank is also exploring the idea of charging a further annual 'rewards fee' per card: leaving customers to pay an annual fee for the Visa/MasterCard, a second annual fee for the AMEX, a third annual fee for rewards on one card or four annual fees to earn points on both.

Combined, cardholders could be expected to pay over $600 per year in fees for a frequent flyer-earning dual-card account, under some of the new credit card structures currently on the table at Westpac:

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That’s quite expensive by many people’s standards, which is why the banks have one more ace up their sleeves…

RBA credit card interchange fee cuts: switching to AMEX-issued AMEX cards

Regardless of annual cardholder fees, all bank-issued AMEX cards will be bound by the RBA’s interchange cuts – although American Express cards directly-issued by American Express Australia aren’t subjected to the same limitations.

This means that American Express can continue setting the fees that businesses pay to accept and process its own cards, earning more revenue per transaction than when a bank-issued AMEX card is used. In turn, that leaves more money available to spend on benefits like frequent flyer points for cardholders at higher earning rates than the competition.

With this in mind, Australian Business Traveller has learned that Westpac is strongly considering a new concept altogether: having American Express Australia directly-issue cards bearing the bank’s logo, but managed entirely by AMEX: similar in concept to today's David Jones American Express cards where AMEX is the direct card issuer.

Cardholders would manage their account via the AMEX website, receive their monthly statements from AMEX, remit payments to AMEX for their purchases and contact American Express Australia – not Westpac – with any transaction and customer enquiries.

Such a card would not be accompanied by a companion Visa or MasterCard but would allow cardholders to continue earning up to 1.5 airline frequent flyer points per dollar spent and with a very attractive annual fee of just $250/year, as the card wouldn't be subjected to the RBA’s interchange cuts, being directly-issued by American Express Australia.

Existing Westpac customers would merely be “introduced” to this new card and file a “shorter than normal application via American Express” upon surrendering their existing bank-issued AMEX card.

When asked to comment, a Westpac spokesperson told Australian Business Traveller that the bank "continues to look at all of its options to provide value to its customers" ahead of the RBA's looming July deadline.

RBA credit card interchange fee cuts: further changes to points and benefits

AMEX aside, it’s expected that Australian banks could offer up to 1.0 airline frequent flyer points per dollar spent on Visa and MasterCard credit cards from July, but with this figure reducing significantly after the first $1,000-$3,000 of monthly charges: plummeting earn rates thereafter to as low as 0.25 points per dollar spent.

At least one Australian bank is also looking to pare-back added benefits like travel insurance and airport lounge access, with a selection of perks included at no charge and extra benefits offered for purchase as needed.

For example, cardholders may be charged an additional $99 per year to enjoy two airport lounge visits, or could be asked to pay $79 to extend their credit card travel insurance to cover a spouse and children joining them on a trip.

Also on the table: a $29 fee to ‘waive’ all foreign transaction charges for a specific one-month period, beneficial for cardholders planning to spend more than $1,000 abroad during that window – as with a typical 3% fee, every A$1,000 spent overseas would otherwise incur $30 in added charges.

Banks are also considering bonus frequent flyer points on certain categories of spend – including direct debits, PayPal transactions, Uber and taxi charges, supermarket and department store purchases, dining expenses and public transport costs – to counter cuts to earning rates elsewhere.

What would your ideal credit card look like in the ‘post-RBA’ era? Would you happily trade perks for points to maximise your frequent flyer earnings, or would you still prefer a well-rounded card, even at a higher cost? Share your thoughts as a comment below!

Chris C.

Chris is a a former contributor to Executive Traveller.