Australia's Credit Card Surcharge Ban Takes Effect October 1, But Loyalty Points May Suffer

The Reserve Bank of Australia (RBA) has banned surcharges on eftpos, Mastercard, and Visa payments, covering debit, prepaid, and credit cards. American Express and Diners Club are not included in the ban. In its conclusions paper on merchant card payment costs, the RBA found that Australians were bearing about $1.6 billion of the $1.8 billion in surcharges paid annually on those networks. The regulator also determined that the surcharging rules had become so confusing that they "no longer works as intended."

But the second half of the reform is less widely understood: interchange fees — the charge paid by the cardholder's bank when a card is used — are being slashed. From October 1, the cap on consumer credit card interchange will fall from 0.8 per cent to 0.3 per cent. For debit cards, the cap drops to 0.16 per cent or eight cents per transaction.

As frequent flyer expert Adele Eliseo put it: banks "simply are not going to have as large a pool of money to fund those benefits." While tapping a card will become simpler and cheaper for consumers, using a credit card could become a lot less rewarding over time.

Why This Matters

Every Australian consumer who uses a credit card will be affected: surcharges disappear immediately, but reward points, travel perks, and interest-free days may be cut back.
The reform shifts costs from consumers (via surcharges) to card issuers, which will likely respond by reducing the value of loyalty programs.
This is a significant regulatory change in Australia's payments system, with potential ripple effects on how banks compete for card customers.

Background

Australia has long had a system where merchants can pass on the cost of card acceptance to customers via surcharges. The RBA's review found this system was not working — surcharges were often higher than the actual cost, and consumers found them confusing. The ban aims to simplify pricing and remove hidden costs. Interchange fees are the main source of revenue for card-issuing banks, and they have historically used that income to fund rewards programs.

Key Perspectives

Consumers: Immediate relief from surcharges, but may face diminished rewards and fewer interest-free days as banks adjust to lower interchange income. Banks: Margins on credit card operations will shrink; they are likely to reassess the cost of loyalty programs, possibly reducing earn rates, introducing annual fees, or cutting perks. Merchants: Lower payment costs and no surcharge management; some may absorb savings or pass them on to customers, though prices are unlikely to fall noticeably. Frequent flyer programs: The pool of funds banks use to buy points from airlines and hotels will shrink, potentially leading to devaluations or reduced availability.

What to Watch

Bank announcements in the coming weeks regarding changes to credit card reward programs, annual fees, or interest-free periods.
Whether merchants with previously high surcharges reduce their prices, or simply pocket the savings.
Any further regulatory action from the RBA or government if the cuts to interchange fees create unintended consequences for competition or consumer choice.

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