Banks have threatened to increase credit card fees and make it harder to earn rewards if the Reserve Bank of Australia’s proposal to ban card surcharges goes ahead.
Is this the end of credit cards, which are already being used less frequently? And what will become of loyalty programs?
Bank backlash
The RBA, which oversees the payments sector, wants surcharges eliminated for debit and credit payments, a recommendation welcomed by consumer groups.
Card charges have become increasingly unpopular in recent years, with shoppers regularly paying fees on everyday transactions regardless of whether they use a debit or a credit card.
In submissions made public this week, the big four banks condemned the central bank’s proposal, warning it could lead to higher annual card fees, shorter interest-free periods and diminished card rewards.
Westpac accused the federal government, which pushed for more consumer-friendly payment policies before the 2025 general election, of failing to make it clear to consumers that they could bear the cost of the elimination of surcharges.
“Neither the government nor the RBA have openly and transparently told the 17 million Australians who have a card in their wallet that the proposal … would result in arguably the biggest change in the market since [credit cards’] introduction,” the bank’s submission says.
Other industry players say the banks’ warnings are credible, with the owner of Square and Afterpay, Block, describing costlier credit cards as an “intended outcome”.
Sign up: AU Breaking News email
The RBA proposal would wipe all surcharges, meaning people with low-cost debit cards would no longer be vulnerable to paying the same fees as exclusive rewards-generating credit cardholders.
The current system effectively subsidises credit card users at the expense of debit card users, a system deemed unfair by the RBA and consumer groups, including Choice, which is backing the RBA’s reforms.
“There are a lot of stakeholders who make a buck out of the payments system and I’m not surprised to see some of them trying to preserve their position, but ultimately the RBA has to stick to its guns,” Choice’s head of policy, Morgan Campbell, said.
The end of credit card rewards?
Opaque and tricky rewards schemes have been funded by banks’ underlying fees and would have to be reduced, according to senior payments systems experts, who asked not to be named.
“Does it make any sense that you get rewarded for paying for something? The whole system is built on tricking people,” one said.
Bank-to-bank transaction fees include costs such as cardholder reward programs, which are responsible for nearly a third of the credit fees despite having no connection to transaction costs, RBA analysis found.
Big banks say credit cards are important for household spending and cashflow.
Credit card usage, however, is already falling, with four times more debit accounts than credit accounts in the system. Some consumers have also switched from credit cards to buy-now pay-later platforms.
Less than a third of Australians say they rely on credit cards for their finances, with “just-in-case” emergency spending and rewards the main reasons for having a credit card, comparison website Finder surveys show.
If banks make up for the loss of transaction revenue by increasing card fees and slashing rewards schemes, customers will be more likely to dump their credit cards, says rewards expert Steve Hui.
“If credit cards and debit cards offer … no reward benefits, then really what is the point of getting the credit card?” said Hui, who runs The Flights Club website.
Professor of finance at RMIT University, Angel Zhong, said banks could choose whether to slash credit rewards or hike fees or interest rates across the rest of their banking offerings.
“Banks can still exploit consumers by passing on [costs],” Zhong said. “The money needs to come from somewhere.”
Macquarie Bank, meanwhile, has warned big banks could still hold on to some fee revenue under the RBA proposal and businesses and debit card users may still be left footing the bill for credit card rewards programs.
The RBA’s payments boss, Ellis Connolly, on Thursday said the bank had heard complaints about the proposal “loud and clear,” and would meet with affected parties to understand their concerns. A final decision is expected by December.