Australia’s Credit Card Fee Crackdown Threatens Points

Australia is looking to curb credit card costs to help businesses but that comes at the cost of frequent flyer points and Qantas bottom line. 

A Push to Lower Costs for Businesses

The Reserve Bank of Australia (RBA) is moving to eliminate card surcharges and tighten interchange fees beginning July 1, 2026. Today, domestic credit card interchange fees average around 0.8%, with a target cap of 0.5%. The new plan would cut that nearly in half to 0.3%. By comparison processing fees in the US range from 0.2% to 4% depending on the type of card used (debit being the lowest, American Express and World Mastercard being the most expensive.)

The motivation is straightforward. With cash use falling to just 13% of Australian transactions, surcharges are no longer serving their original purpose of steering consumers toward lower-cost payments. The RBA believes removing surcharges and reducing interchange will simplify payments while saving businesses and consumers up to A$2.4 billion per year. Transparency will also improve, as networks will be required to publish their fees. The consultation period runs until August 26, 2025, with final rules due by year-end.

What the RBA estimates exclude are the notion that business owners will pass on that savings to consumers. Perhaps they will, but I suspect they will not. In businesses where they give a cash payment discount, this will help consumers directly in a material way, but for those who do not ad a credit card surcharge and absorb the cost will benefit but consumers will not. Additionally, with credit card points then becoming more expensive for issuers consumers will see earning rates cut indirectly adding cost to the consumers.

One could argue, this is transferring the cost of those points from small business owners back to consumers using the cards, but the notion of savings by the RBA study is entirely unfounded. It’s based on current market behavior, not future consumer and business behavior when all of the rules have changed.

How Other Economies Handle Interchange

Australia’s proposal puts it closer in line with Europe. Since 2015, the EU has capped interchange at 0.3% for credit cards and 0.2% for debit cards, both for domestic and cross-border payments. Those limits were recently extended to cover non-EU cards until 2029.

The United States takes a more fragmented approach. While interchange caps are absent for credit cards, states once attempted to prohibit surcharges. Most of those laws were overturned, leaving merchants to follow Visa and Mastercard’s rules on when and how they can levy surcharges.

In comparison, Australia has historically maintained higher ceilings, which allowed banks to fund rich reward programs. Tightening that gap means aligning with international norms, but at a cost to the local frequent flyer ecosystem.

The Consumer Impact: Reward Cards in the Crosshairs

This is where frequent flyers should pay attention, not just in Australia but in the United States too where congressional bills aim to replicate the efforts seen abroad. Lower interchange means banks will have less revenue to subsidize loyalty perks. Analysts expect tighter earning rates, more restrictive caps, and fewer generous sign-up bonuses. Even premium card issuers, such as American Express, may pare back rewards to protect profitability.

For many cardholders, the era of reliably earning one point per dollar without limitations may fade into memory. The changes will not eliminate rewards altogether, but the value proposition could shift significantly.

Why Airlines Are Concerned

Airlines and banks have developed highly profitable partnerships around credit card loyalty. In the US, almost all airline profits now flow not from tickets, but from the sale of points to banks and issuers. Interchange fees act as the funding base for this ecosystem. This site has pointed out that American Airlines has not earned a profit from its core business since 2019, but even Delta Air Lines last year reported $4bn in profit but earned $6bn from American Express. Loyalty programs are conservatively estimated at 50% profit but most experts have it significantly higher.

“For example, Delta is the world’s most profitable airline, and in the first half of 2024, the airline (sort of) lost money actually flying passengers.

Delta’s passenger revenue per available seat mile was 17.81 cents, while Delta’s cost per available seat mile was 19.63 cents. So strictly from a passenger revenue standpoint, the carrier’s costs were around 10% higher than passenger revenue.

In the end, Delta’s total revenue per available seat mile was 21.69 cents, for a healthy margin of around 10%. So, where does that extra revenue come from? While cargo factors into it, the single biggest source of profitability there is the loyalty program.” – One Mile At A Time

Cutting interchange erodes that base. With a thinner revenue pool, airlines may have to adjust earn rates, increase redemption thresholds, or restructure card partnerships altogether. For carriers already relying heavily on loyalty program income, the effects could be material.

It could also mean that airfares go up. If card issuers are buying fewer high margin miles, carriers will have to adjust their business model. Looking specifically at Qantas, in 2024 it reported just over A$2bn pre-tax profit, A$1.25bn net, but its loyalty program earned A$2.5bn last year. If revenue from credit cards drops in half, a profitable airline becomes break-even.

If the same happened here, American Airlines (one of the worst performers in the US) could be out of business in a few short years.

Conclusion

The RBA’s proposal aims to simplify payments and cut billions in costs for consumers and businesses. In practice, it would bring Australia closer to European norms while reshaping the economics of rewards programs.

For cardholders, the trade-off is clear: cleaner, cheaper payments may come at the expense of generous points. For airlines and banks, the recalibration could mark the end of a lucrative era. What looks good on paper now is not necessarily going to look the same way once these actions are put into effect. It could mean higher fares, it will likely mean fewer miles earned on transactions and lower sign-up bonuses, and it may not even mean lower prices for consumers if business owners don’t instantly lower rates based on lower processing costs. It feels like we should be welcoming this type of legislation, especially for me as a business owner and as a consumer, but the reality is that airlines raked in about a quarter of a trillion dollars in 2024 with a net profit combined of $6.7bn of which Delta was 2/3rds. They are all dependent on these fees and if they go away, it’s entirely possible, some of the airlines do too.

What do you think?