Banks Cut Rewards as Reserve Bank Prohibits Card Fees

The Reserve Bank of Australia has implemented a rule change that will prohibit merchants from charging credit or debit card fees on transactions starting October 1. This decision is expected to cost banks around $600 million in income, leading them to reduce benefits in rewards programs.

The Commonwealth Bank, with 17 million customers, is one of the major banks affected by this change. It has announced a new Qantas arrangement where customers will receive fewer points for every dollar spent and have to pay an annual fee of $149 to be part of the program.

This move has raised questions about the Reserve Bank's decision-making process. Originally, credit-card charges were not allowed to be passed on to customers who used cards, but in 2003, the Reserve Bank allowed merchants to identify and pass on these charges in the interest of fairness and transparency.

However, with the current rule change, the Reserve Bank is aiming to remove any disincentive for consumers to use cash instead of credit or debit cards. Cash usage costs the Reserve Bank around $50 million per year, while merchants incur additional costs for banking and security risks.

The Australian Taxation Office estimates that more than $16 billion in tax revenue is lost each year due to avoidance through cash transactions. The use of rewards programs has also been criticized for reducing competition among airlines, as customers are locked into using a particular airline to accumulate points.