Consumers can expect to receive fewer perks for using bank-issued American Express cards from this weekend, as rules that are set to shake up the credit card market come into force.
Payment regulations starting in the new financial year mean banks will make much less revenue from American Express “companion cards” to Visa and Mastercards, and lenders have responded by slashing the value of reward schemes for these cards.
Commonwealth Bank, Westpac, and National Australia Bank have all announced cuts in the value of their rewards schemes for companion cards in recent months, to take effect from July. ANZ Bank is dumping its Amex companion card altogether.
At the same time, there could be benefits to consumers from greater competition, Citi has predicted, as the dominant big four were the only lenders to issue “companion cards,” and these cards will become less attractive to customers.
Citi’s head of cards and loans Alan Machet said the recent rounds of rule changes in credit cards were prompting banks to tailor their reward schemes to appeal to target customers, even if that meant overall rewards were less generous.
At Citi, the fifth biggest bank in credit cards, this has led to customers being offered the most points for dining and travel. Qantas has also launched its own credit card through Citi aimed at shoppers who value frequent flyer points.
“It’s a great time to look around and see what [customers] really value,” Mr Machet said.
Amid these changes in the credit card landscape, banks have also copped political flak over the high interest rates on cards, and their potential to act as a debt trap for some customers.
Westpac on Friday said it would offer the first major bank credit card with an interest rate below 10 per cent, a move that chief executive of Westpac’s consumer bank, George Frazis, said was a response to strong demand for lower-cost credit.
“The Westpac Lite Card brings flexibility to customers looking for a straightforward and basic credit card with a low interest rate,” Mr Frazis said.
From July, the amount banks make on Amex companion cards from “interchange fees” – which are paid by credit card providers when customers make credit transactions – will be capped. Credit cards issued directly by Amex will not be affected by the changes.
The 2014 financial system inquiry recommended lower interchange fees, because it said this saving would likely cut the fees banks charged merchants, and these savings would then lead to lower prices for consumers than otherwise.
Interest rate comparison website Mozo said Westpac, NAB and CBA would all cut the rate at which customers earn loyalty points on companion cards from July, and NAB would cap the amount of rewards points that could be earned each month.
Mozo’s director of marketing, Kirsty Lamont, said that on average, customers needed to spend almost $20,000 to receive enough points for a $100 gift voucher. That is an increase of $1789 in the required spend, compared with two years ago.
“The upshot is the value of your reward program is being absolutely slashed. It now takes a lot more spending to earn what you did previously,” Ms Lamont said.
The generosity of credit card loyalty schemes was already declining before the latest changes, after the Reserve Bank last year introduced a cap on interchange fees paid by Visa card and Mastercard to the banks.