The Reserve Bank of Australia (RBA) has proposed changes to credit card fees that could see consumers forced to spend more to get the same amount of frequent flyer points.
In a new report today, the RBA proposed some new reforms to credit card fees, which will likely slash hundreds of millions of dollars in revenues from the banks including Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
Those revenues are then used to buy frequent flyer points from airlines to pass onto customers as rewards for choosing particular credit cards – usually the higher annual fee and interest rate ones.
Airlines such as Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) and their subsidiaries Jetstar and Tiger Airways will also be prohibited from charging flat fee surcharges for paying by credit card, which could see charges rise for more expensive international flights, but fall for cheaper domestic flights.
The RBA said, "The reduction in interchange fees, especially the cap on the highest credit card rates, is likely to result in some reduction in the generosity of rewards programs on premium cards."
The central bank also notes that some of the new debit/prepaid rewards cards will be similarly affected. The reforms include capping interchange fees at 0.8%, where fees now range between 0.2% and 2.2%.
Fairfax Media estimates the combined impact of the new reforms will lead to an impact of between $600 million and $800 million to the banks' and airlines' income.
For consumers, it should mean lower overall prices in goods and services, and lead to fewer instances of excessive surcharging. Smaller merchants will be the biggest beneficiaries as they tend to pay high fees because of their lower volumes.
Supermarket giant Woolworths Limited (ASX: WOW) recently changed its loyalty program, dropping Qantas' frequent flyer program awards, instead rewarding loyal shoppers with immediate discounts off purchases.
Foolish takeaway
The changes mean it will probably cost more for Australians for frequent flyer points when using their credit and debit cards. The benefit is that we'll likely pay less on a whole range of goods and services.
