Australian banks are significantly scaling back their customer rewards programs in anticipation of a new cap on interchange fees, a move that has angered thousands of consumers who are now pledging to switch to cash to avoid bank charges.
Effective October 1, the Reserve Bank of Australia (RBA) will lower the cap on interchange fees, which banks charge businesses for processing card transactions, from 0.8 percent to 0.3 percent of the transaction value. The RBA estimates this change will result in an annual loss of approximately $660 million for financial institutions. Concurrently, businesses will be prohibited from imposing surcharges on customers to cover these interchange fees; instead, such costs must be incorporated into the base price of goods and services.
In response to the anticipated reduction in revenue, several major banks have begun to pare down their rewards programs. Commonwealth Bank is transitioning its rewards credit cards to its Yello loyalty program, where rewards earned will be tiered based on customer status, with some redemptions requiring more points than before. For instance, a $50 Myer gift card, currently redeemable for 10,950 points, will cost 12,500 points under the new Yello program structure.
Westpac and its subsidiaries are increasing interest rates on some cards by up to 3 percent and raising annual fees. The annual fee for Westpac's Qantas Platinum card is set to rise from $75 to $125. St.George, Bank of Melbourne, and Bank SA are reducing their interest-free periods from a maximum of 55 days to 45 days.
"What we've seen is a really broad range of different ways to cut value from those rewards cards, which includes hikes to card fees and hikes to interest rates," Sally Tindall, Canstar's director of data insights, told News.com.au. Tindall suggested that banks are utilizing the upcoming fee ban as a "circuit breaker" to reassess the profitability of their loyalty schemes.
Customer reactions have been largely negative, with many expressing frustration over the banks' decision to reduce rewards rather than absorb the costs themselves. Online commentary indicates a significant number of customers are considering a shift to cash transactions. "Cash doesn't have surcharges. Cash won't be monitored where you spend it. Cash is king," one user wrote. Another commented, "With all the profits and bonuses that are awarded, I think banks can absorb (the loss)."
Financial experts like Tindall are advising consumers to use this period as an opportunity to re-evaluate their banking habits. She recommended customers calculate the total fees paid over the past year against the value of redeemed rewards to determine if their credit card is a net benefit. "And it could be potentially the circuit breaker that you need to get rid of the credit card altogether and move to paying with debit," she added. Customers with accumulated reward points are also being encouraged to redeem them before the program changes take effect. Michele Bullock, governor of the Reserve Bank of Australia, has stated the RBA estimates banks will lose about $660 million annually from the interchange fee changes.
Businesses will be banned from charging card surcharges starting October 1, with these costs needing to be integrated into product pricing.
Thousands of Australians have vowed to switch to cash, citing the reduction in reward programs as a primary motivation.
