Changes to credit card fees to affect frequent flyer points
Last year, the Reserve Bank of Australia announced it will enforce a cap on the interchange fees on credit cards
This change will be effective from July 1 and it will mean most banks will be reducing the customers’ points-earning power.
Interchange fees are the money that credit card companies pay the bank each time a customer uses their card. The new regulations will cap the fees at 0.8 per cent, while the current system has seen some fees go up to three per cent.
"Every time you use your credit card to buy something, your bank makes money by collecting an ‘interchange fee’ from the business that processed your payment, and uses this money to help buy the frequent flyer points you’re earning from the airlines,” said Chris Chamberlin credit card guru at Australian Business Traveller.
“For example, for every $1,000 you spend on your credit card, you bank could currently be earning around $30 in interchange fees on high-level American Express cards (at a three per cent fee) or even $10 on Visas and MasterCards (at a 1 per cent fee) — but once the new cap takes place in July, revenue would be capped at just $8 on the same spend (0.8 per cent), and with less money available to spend on points, banks can’t afford to buy as many of them for their customers and so are reducing earn rates.”
This change will impact Visa, MasterCard and American Express card holders.
ANZ bank has responded to these caps by announcing that it will discontinue its AMEX card and they have already stopped issuing these cards.
This change will affect all bank-issued American Express cards, however, the cap doesn’t apply to credit cards issued directly by American Express as they have their own payment network that doesn’t rely on an interchange fee system.
“That means American Express is now becoming the go-to option for credit cards that earn frequent flyer points, with its top-level cards churning out up to three frequent flyer points per dollar spent on selected transactions and its other Black- and Platinum-level products doling out a solid 1.5 airline frequent flyer points per dollar spent on most transactions, uncapped,” says Chamberlin.
Steven Hui from iFLYflat.com.au encourages all credit card holders to research how their card will be impacted by the changes so they are not caught off guard.
“My advice to everyone with a credit card to review and be aware of what is changing, as nearly every credit card will have some change on July 1. The worst outcome is for cardholders that continue using their old card thinking they are getting A, but find out 12 months later they are getting B (which is significantly less than expected – as points lost cannot be recovered).”