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RBA Reforms to Reduce Credit Card Reward Generosity; Qantas Revises Lounge Access Policies

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RBA Reforms and Qantas Changes Set to Reshape Loyalty Programs

The Reserve Bank of Australia (RBA) has announced reforms, effective from October, that will reduce "interchange fees" paid by merchants to card-issuing banks. This change is projected to decrease card issuers' annual revenue by $660 million. These changes are expected to lead to adjustments in credit card reward schemes, including frequent flyer programs. Concurrently, Qantas has implemented revisions to its lounge access policies, affecting passengers on Jetstar international flights and altering the transfer rules for complimentary lounge invitations.

RBA Targets Credit Card Interchange Fees

The Reserve Bank of Australia has outlined reforms set to impact credit card reward schemes and frequent flyer programs, becoming effective in October. The reforms specifically aim to reduce "interchange fees," which are payments made by merchants to card-issuing banks for each transaction.

The RBA estimates that these adjustments will result in an annual reduction of $660 million in interchange revenue for card issuers, primarily banks.

The RBA's stated objective for these reforms is to enhance the efficiency of the payment system and decrease the costs businesses incur when customers pay by card. This initiative coincides with a forthcoming ban on merchants adding card surcharges.

The RBA has communicated that merchants should not subsidize benefits, such as rewards points, that issuers offer cardholders to encourage the use of more expensive credit cards.

Impact on Loyalty Programs and Banks

Australia has a high level of engagement with frequent flyer programs. Qantas reports over 18 million members in its scheme, and Virgin Australia reports 12 million members. Over 200 billion points are reportedly issued annually, accumulated through various channels including credit card spending, supermarket loyalty schemes, and utility provider switches.

Banks are anticipated to adjust their credit card offerings to offset the projected loss in interchange revenue. Potential changes may include:

  • Reducing the generosity of credit card reward schemes.
  • Increasing card interest rates.
  • Shortening interest-free periods.
  • Raising annual fees.

Banks are significant purchasers of frequent flyer points from airlines, accounting for an estimated 40 percent of all points issued by Qantas.

Qantas's Outlook Amidst Reforms

Qantas has maintained its profit guidance despite the upcoming RBA reforms. The airline's position indicates a belief that consumer demand for points will remain strong, even if banks modify their reward structures. The Qantas Loyalty arm generates approximately a quarter of the airline's profits.

The ultimate impact on Qantas and other loyalty programs is expected to depend on consumer behavior and their sensitivity to any adjustments made by banks to their credit card offerings. Analysts suggest that banks are likely to reduce the generosity of their airline reward schemes later this year, driven by the reduced profitability of credit card operations under the new RBA regulations.

Airlines, as monopoly providers of their respective loyalty points, may hold a strong negotiating position. For many customers, airline points are reportedly a primary driver for credit card choice.

Separate Qantas Lounge Access Revisions

Separately, Qantas has revised its lounge access policies, with these specific changes occurring ahead of the RBA's anticipated reductions in interchange fee caps. Under the updated rules:

  • Passengers on Jetstar international flights using complimentary invitations will no longer be granted access to Qantas lounges.
  • Complimentary lounge access remains available for customers flying on Qantas-operated flights; customers on Qantas codeshare flights operated by Jetstar; and customers on Jetstar domestic flights, subject to availability.
  • Complimentary lounge invitations are now only transferable to individuals traveling on the same flight as the invitation holder, restricting the prior practice of trading or gifting passes among different travelers.
  • Platinum One Frequent Flyers and Platinum One pass holders are exempt from these new rules.

Commentary from The Champagne Mile website suggests that these lounge policy changes likely aim to preserve Qantas lounges for Qantas passengers. It was also noted that the restriction on single lounge pass transfers represents a material reduction in a key benefit associated with Qantas-linked credit cards. Qantas has previously reported that spending on its linked credit cards accounts for over 35 percent of Australian credit card expenditure.