Frequent flyer points in the crosshairs of the RBA’s credit card crackdown

The country’s credit card system is on-track for another shake-up, with the Reserve Bank of Australia (RBA) considering an array of proposals from its Payment Systems Board (PSB). Set to be adopted in mid-2026, the proposals – centred around banning credit card surcharges and reducing credit card ‘interchange fees’ – initially sound positive. But spenders collecting frequent flyer points will now be sleeping with one eye open.

That’s because, traditionally, banks award frequent flyer points based on the number of dollars that a cardholder spends. In turn, the credit card issuer earns money every time their customer makes a purchase with their card. That money comes as a percentage of the transaction, known as an interchange fee. It’s drawn from the costs that merchants incur to accept credit cards.

But if that revenue goes down, banks have less money available to spend on cardholder perks like reward points. In fact, the same thing happened in 2017, when the RBA first introduced a cap on interchange fees. As this took place, practically every card issuer adjusted the rewards proposition of their products to match the new market fee.

Banks did this in a number of ways. Some cut the pure base earning rate – the quantity of points earned per dollar spent. Others imposed stricter monthly or annual points capping limits, to constrain the number of points they’d have to buy. Some issuers imposed points tiering arrangements, where the earning rate is reduced on higher volumes of spend. But that’s not all.

Some issuers increased annual fees to help pay for those points. Other banks took the knife to points transfer rates – another way of reducing the number of frequent flyer points the banks buy. Some banks, like Macquarie, subsequently axed frequent flyer credit cards entirely. Others phased out products with no international transaction fees, or increased the fees already being charged.

But with the RBA’s latest proposals, there’s a strong element of déjà vu.

RBA’s proposed credit card changes

Here’s a quick overview of what the RBA currently has on the table in the credit card space.

• Selected card networks (EFTPOS, Mastercard and Visa) would be allowed to enforce ‘no surcharge’ rules on merchants. That is, businesses that accept credit cards could be banned from recovering the cost of the transaction via an add-on fee.
• Under the RBA’s ‘preferred’ stance, domestic credit card interchange fees would be capped at 0.3% of a transaction’s value. Currently, the cap is 0.8%, with a ‘benchmark’ (target average) of 0.5%.
• Interchange fees on international credit card transactions would be capped at 0.4% of the transaction’s value for in-person payments, and 1.5% for online/phone payments. To compare, these interchange fees can be as high as 2.4%. (These rates apply when a foreign cardholder makes a transaction in Australia – not when Australians shop or spend abroad).
• Currently, American Express is outside the purview of these proposals. That’s because there is no ‘interchange’ on Amex transactions, as Amex is both the owner of the card network, and the card issuer. But the Australian Government has proposed reforms that would also bring American Express under the scope of the Payment Systems (Regulation) Act – the piece of legislation that gives the RBA these powers.

It could be said that what the RBA gives with one hand, it takes with the other. Reduced interchange fees sound positive for merchants, as it will directly reduce the costs of accepting credit card payments. However, the same merchants – who can currently pass acceptance costs onto their customers in full, could be banned from doing so. In other words, businesses that incur no net costs from credit card acceptance today (via surcharging) could be forced to absorb credit card processing fees into their base prices.

In that scenario, the business gets lumped with the cost of processing the transaction, rather than the cost being paid only by customers who choose to use a credit card. For businesses with tight margins, it could see base prices rise across the board to compensate – even for those who aren’t paying with plastic.

Why the RBA believes it’s a good idea

The RBA’s view is that credit card interchange fees should only cover very specific credit card costs. Such costs would relate to the function of the core payments system, without any frills on top. For instance, the RBA believes that interchange fees should not fund:

• Rewards programs.
• Interest-free days for cardholders.
• Non-core software for merchants, such as payment analytics.

“The PSB … considers it appropriate that costs associated with credit losses and loyalty programs remain outside the scope of eligible costs for determining interchange fees. Costs associated with credit risk and credit losses are standard features of the provision of credit to customers, which are most efficiently borne by the customer. Similarly, given the maturity of established card networks in Australia, there are little to no system-wide benefits associated with loyalty or rewards programs that could justify their cost being distributed across participants in the payments system rather than borne by the individual cardholder.”

-RBA Consultation Paper, July 2025

RBA’s hit to earning points on credit cards

The RBA knows that its changes are highly likely to impact points earners. But, to the RBA, that’s not a concern.

“The benefits of card payment services to end users may decline; specifically, issuers could charge higher card fees or reduce the value of card benefits or rewards programs, and acquirers could capture the savings from lower interchange fees by increasing their margins.”

“Issuers could recover these costs from cardholders via higher cardholder fees or higher interest rates, or could mitigate these costs by shortening interest-free periods.”

“Around $1.2 billion in surcharges paid by consumers each year would be eliminated. However, some of the consumer benefits from the reduction in surcharges would be offset by higher prices charged by merchants.”

-RBA Consultation Paper, July 2025

In other words, the providers of credit card terminals (‘acquirers’) could make even more money under these changes. Meanwhile, the banks that issue the credit cards customers are using would earn less. But the RBA says this isn’t about favouring acquirers. It also doesn’t like how some acquirers are offering points to business owners from the transaction fees paid by their customers.

Such companies “have gone beyond the spirit of the regulations,” says the RBA. These businesses are “offering merchants incentives, such as frequent flyer points, for their customers’ card transactions, with a higher cost of acceptance that the merchant can pass on to the consumer via a surcharge.”

By banning surcharging, the cost of these rewards would be shifted back to the business that’s earning the points. The same spirit would also affect EFTPOS terminal providers that promote their services as ‘free’ for businesses. When the full fees are pushed onto the customer, as they are now, “this can reduce the incentive for merchants to shop around and seek lower-cost payments services.”

This differs from other payment platforms where business owners choose to pay fees to earn points for their own business. In that instance, it’s already a user-pays scenario.

How much could credit card points be cut by?

If the RBA’s proposals go ahead, credit card providers are expected to make adjustments. As happened in 2017, some banks may react differently to others. But if the current interchange cap of 0.8% were indeed slashed to just 0.3% as proposed, that’s a cut of up to 62.5% in bank revenue when a cardholder spends.

Behind the scenes, frequent flyer points aren’t cheap for banks to buy. And, that money has to come from somewhere. Here are some of the things that credit card issuers could do to balance their expenses or replace those lost revenues:

• Lower the base rate of points earned per dollar spent.
• Impose or tighten points capping and/or points tiering arrangements.
• Increase monthly or annual card fees, or remove existing waivers of these fees triggered by cardholder spending.
• Increase or impose rewards program participation fees, separate to a card’s primary monthly/annual fee.
• Further shorten interest-free periods.
• Increase interest rates (although these are seldom paid by those strategically chasing reward points).
• For indirect earn cards, weaken points conversion rates to airline and hotel program partners.
• For flexible points programs, reduce the number of transfer partners to consolidate volume and negotiate better rates with remaining partners.
• Review or increase other charges, like international transaction fees.
• Migrate to a single ‘points earning’ card, rather than the current split of Platinum/Black or entry-level/mid-tier/premium.
• Reduce other costly card benefits like travel insurance, extended warranty or airport lounge access.
• A combination of the above.
• Or, discontinue issuing rewards credit cards entirely.

For instance, with minimal revenue from each transaction, banks may become more reliant on annual fees to fund credit card points. This could see banks keep earning rates the same but shifting that cost directly to the cardholder. Or, to keep their products more affordable, the points given could be slashed in line with the interchange fee reduction (by up to 62.5%). Hypothetically, a card that currently provides 1 frequent flyer point $1 spent could reduce its earning rate to 1 point for every ~$3 spent, if that approach were taken.

The RBA acknowledges it’s been warned that “competition in the issuing market might weaken, because lower interchange fees could threaten the viability of smaller issuers or new entrants, which tend to rely heavily on interchange revenue.” But with the RBA tabling its proposals, this doesn’t appear to matter.

What about American Express?

The RBA’s proposed credit card changes come as both good news and bad news for American Express. On the one hand, Amex maintains the competitive advantage of setting its own fees. By extension, Amex can design its products to be more rewarding than any other card issuer in the Australian market. But there’s a catch.

American Express still has to compete. It still has to convince merchants that the cost of accepting Amex is worth paying for. And if that cost is too high, merchants may baulk. Alternatively, businesses may look to surcharge customers paying by Amex: which they’d still be allowed to do under these proposed reforms. This would significantly reduce the incentive and benefit of using American Express over a different type of card.

In recent years, Amex’s strategic priority has been to grow card acceptance. The company has been able to sign more merchants by voluntarily reducing its merchant fees, to be more competitive with Mastercard and Visa. In turn, Amex has similarly reduced the rewards earned on some cards in recent years. Some annual fees have also increased, and some no-annual-fee products have been retired.

“Some merchants may be able to constrain the ability of American Express to raise its prices by threatening or choosing not to accept American Express altogether; unlike Visa and Mastercard, American Express is not a ‘must-take’ card for many merchants.”

-RBA Consultation Paper, July 2025

In other words, just because Amex isn’t directly impacted by the RBA’s credit card proposals, there could be a knock-on effect to card acceptance, Amex-specific surcharging or reward points. It’s too early to tell.

Summing up

As with any big change, there are always winners and losers. On the winning side are businesses that already absorb credit card fees into their prices. That’s because those fees should come down, without any direct pressure to reduce the price of the items or services that they sell. That means increased margins and greater profits.

It’ll also bring an end to most merchant-imposed credit card surcharges. While businesses are required to disclose these properly, there’s very little enforcement. In many cases, the only communication of a surcharge is via the EFTPOS terminal screen, when a customer has already made a decision to pay. Even then, some machines just say “surcharges may apply”, and leave you guessing as to the amount until after the charge goes through.

But there’s significant downside. Because businesses could no longer surcharge most payments (aside from Amex), those costs could inflate the price that everybody pays. Businesses that elect to impose an Amex surcharge could on-charge the full cost of acceptance – not only the difference in cost beyond Mastercard/Visa.

And then, there are frequent flyer points. If these changes come into play, you can expect your rewards earning to take a haircut. Or, for the related costs to get more expensive. Either way, it’ll become even more important to spend your points well. Fortunately, that’s our speciality here at Point Hacks, so you’re in the right place.

Also read: How to earn points when paying your rent and daily bills with a credit card

Featured image courtesy of Aleksandrs Karevs/Unsplash.

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