Kiss your credit card rewards good-bye

The banks are at it again, but this time it’s the Reserve Bank of Australia who’s slapping a cap on your credit card rewards.

You may have thought you’d finally worked out your credit cards rewards systems but on 1 July, most banks will reduce your points-earning power while others are dropping certain cards altogether.

Basically, it means you’ll get fewer points for every dollar you spend on your credit card.

This certainly feels like a kick in the teeth after the Big Four, plus Macquarie, recently admitted that that pesky bank levy laid out in the Budget would be passed on to customers but, this is an entirely separate blow to your pocket.

Around this time last year, the Reserve Bank of Australia announced it would impose a cap on interchange fees starting from the 2016-17 financial year.

Interchange fees are what credit card companies pay the banks each time you use your card.

The existing system has some interchange fees as high as 3 per cent but the new regulation caps the fee at 0.8 per cent.

While lower fees are usually a good thing, in this case, it most certainly is not.

Australian Business Traveller credit card expert Chris Chamberlin explains: “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.

“For example, for every $1,000 you spend on your credit card, your bank could currently be earning around $30 in interchange fees on high-level American Express cards (at a 3 per cent fee) or even $10 on Visa and Mastercard (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.”

While no one probably cares that the banks will cop a hit, as usual, it’s the customer who suffers as the change will affect Visa, Mastercard and American Express.

Some banks, like ANZ, have already announced that they’d be dropping their AMEX cards for good and haven’t issued any new ones in anticipation.

The ANZ Frequent Flyer Black AMEX card currently earns 1.5 points per dollar spent but once the card is dropped after 1 August, the accompanying Visa card that customers are left with will only earn one point for every dollar.

Even though you’ll still be able to get an AMEX card from some banks, they will all reduce the rate at which the card can earn you reward points.

But if you get your card directly from American Express, the new regulation doesn’t apply.

The company has its own payment network that doesn’t rely on an interchange fee system which means American Express is fast becoming the go-to option for people looking for credit cards that earn frequent flyer points, according to Chamberlin.

“Its top level cards churn out up to three frequent flyer points per dollar spent on selected transactions,” he said.

“Its other Black and Platinum level products dole out a solid 1.5 airline frequent flyer point per dollar spent on most transactions, uncapped.”

It’s been predicted that most banks will change their rewards programs by tightening up the rewards structure, dropping earn rates, introducing points caps and excluding certain purchases from earning points at all.

Banks are also reducing monthly capping limits, further dissolving your points-earning potential.

“NAB is lowering its monthly points capping limits from $20,000-$25,000 to just $3,000-$5,000 per account on some products,” explains Chamberlin.

“So once you spend more than this each month, you’ll actually earn no points at all.”

Will you change cards in order to still earn points?