Banks Claw Back Rewards as Reserve Bank Cuts Merchant Fees

The Reserve Bank of Australia's decision to prohibit merchants from charging credit or debit card fees on transactions has set off a chain reaction that will leave Australian consumers worse off.

As part of this new policy, banks are expected to absorb the cost of these fees, which is estimated to be around $600 million. To recoup this lost income, banks are rewriting their rewards programs, reducing the benefits for customers in the process.

Commonwealth Bank, Australia's largest bank with 17 million customers, has announced changes to its Qantas arrangement. Under the new scheme, customers will earn fewer points per dollar spent and must pay an annual fee of $149 to be part of the program.

The Reserve Bank's decision is a reversal of its previous stance on credit card fees. In 2003, it allowed merchants to pass on these fees to customers who used cards, citing fairness and transparency as reasons. However, with the aim of promoting the use of cards over cash, the bank has now decided to prohibit this practice once again.

Cash, while convenient for consumers, poses security risks for merchants and costs the government an estimated $16 billion per year in lost revenue through tax avoidance. Despite these costs, Australians still rely heavily on cash, with 500 million $100 notes in circulation.

The effects of this policy change will be felt by consumers, who are likely to see their rewards reduced or eliminated altogether. The airline industry also stands to benefit from the reduction in competition that comes with reward programs locking customers into specific airlines.