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Credit card interchange fee changes, winners and losers

Credit card interchange fee changes, winners and losers

From 1 July 2017, new credit card regulations recommended by the Reserve Bank of Australia (RBA) will come into effect, including a cap on interchange fees – the fees that credit card providers charge banks to cover the cost of processing credit card transactions.

The credit card market is already being shaken up in anticipation of these changes, with banks preparing for the new regulations to take effect. But who exactly will end up better or worse off as a result?

What are interchange fees, and how are they changing?

cropped image of hands with credit card

Currently, lenders use interchange fees to help cover the costs of providing credit cards to consumers, including the costs of transferring money from one bank to another. Up until now, interchange fees have been a lucrative business for some lenders, who have been charging interchange fees of up to 3% of the transaction value for some premium credit cards. It has been estimated that banks currently earn approximately $2 billion annually in credit card interchange fees.

When you buy something with a credit card, the merchant’s bank pays the interchange fee to the bank providing your credit card. However, some banks pass the cost of interchange fees on to merchants in the form of Merchant Service Fees, which can cut into the bottom lines of some sellers. As a result, some merchants pass these costs on to customers in turn, whether by raising prices, putting surcharges on credit card transactions, or requiring a minimum spend for credit card payments (often $10 or more).

From 1 July, the RBA is mandating a cap on interchange fees of 0.8%. This means that for a $100 credit card purchase, a credit card’s issuer can only charge up to 80c from a merchant’s bank, rather than up to $3 as was previously the case for some premium credit cards.

This change to interchange fees is likely to have a significant impact on how banks and merchants generate revenue from credit card transactions, and on how everyday consumers use their credit cards.

Who wins and who loses?

  • Credit cardholders – fewer extra charges
  • Merchants – reduced merchant service fees
  • People seeking CCs – lots of competition
  • Reward cardholders – harder to earn points
  • Banks – losing interchange fee revenue
  • Everyday cardholders – fees may increase

Smiling young woman holding a credit card and typing on a laptop.

The question of whether credit card users will ultimately be better or worse off from these new interchange fee regulations may ultimately depend on whether they’re using their credit cards as a simple and affordable way to buy now and pay later, or as a means to earn premium rewards.

Consumers with rewards credit cards could be in for a tough time, as from mid-2017, it may be much more difficult and/or expensive to earn a free flight to the Gold Coast simply by regularly spending on your credit card. The forecast reduction in revenue from interchange fees means that banks may need to limit, reduce, or remove some of the extra benefits and services they offer, including credit card rewards. For example, ANZ recently got rid of high-reward American Express companion cards.

American Express Reward Cards:

Changes to interchange fees are expected to hit credit cards with rewards programs the hardest, and American Express credit cards are renowned for their competitive rewards.

Some banks issue American Express companion cards with their credit cards, where an Amex is linked to the same account as your Visa or MasterCard, so you can access its reward program. The new caps on interchange fees could lead to many of these Amex companion cards being withdrawn from the market.

However, credit cards issued by American Express itself deal directly with the merchant’s bank rather than going through a separate issuing bank, so interchange fees aren’t involved. You’ll still need to pay above-average interest rates and fees in some cases, but you’ll continue to enjoy access to the competitive Amex rewards program.

For consumers with simpler low-rate credit cards without a rewards program, the new RBA regulations could make flashing the plastic at the checkout a much more viable option, no matter the transaction.

Bartender receiving credit card of customer for payment in cafe

The new caps on interchange fees should help to keep the corresponding merchant service fees relatively low, thus providing merchants the flexibility to offer more competitive pricing and eliminate minimum spend amounts for credit card payments. Credit card surcharges may remain, but a separate set of regulations (effective September 2016 for large businesses, and September 2017 for small businesses) should limit these to just cover the cost of the merchant service fee.

Another potential outcome of these regulations could end up affecting many credit cardholders. If banks start looking for other ways to raise the revenue they once got from interchange fees, it’s possible that they may start increasing the annual fees, late payment fees, and other charges on credit cards.    

Because it’s likely that many banks and lenders will make changes to their credit card offers as a result of these regulations, it’s also likely that many consumers may start considering alternative credit card options – the perfect time for smart lenders to unveil competitive new credit card deals.

Currently, there are 180 different credit cards to choose from on the Australian market, including 83 credit cards with rewards programs. If you find yourself in the market for a new or replacement credit card, remember to compare credit cards to find the options that will prove the most suitable for your unique financial situation.

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Learn more about credit cards

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

What should I do if my ANZ credit card has expired?

Your ANZ credit card is considered expired only after the last day of the month and year marked on your card. For instance, if your card’s expiry date reads 03/22, it is valid until 31 March 2022 and expires on 1 April 2022. Typically, you should have received a new credit card by that date, and you won’t have to request a new card. 

Once you get the new card, you should remember to switch any automatic payments you have - such as a utility or mobile phone bill - from your expired credit card to your new credit card. Equally, if you are using CardPay Direct to repay your ANZ credit card debt, you may need to update the credit card account details for that service as well. 

In case the new card doesn’t arrive by the expiry date of your current credit card, you can call ANZ on 13 22 73 to find out the reason and if you need to request an expedited card. Please note that if you were planning to close your credit card account or request a credit card upgrade, you may need to call ANZ at least before the 25th of the month your current credit card expires in, as that’s when they may send you the new credit card.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Does ING increase credit card limits?

You may want to increase your credit card limit for many reasons, such as having access to more spending money. However, if you are using the Orange One credit card issued by ING, you may not be able to do so. 

ING customers can choose a credit limit of their preference when applying for the Orange One credit card. Depending on your financial situation, this limit can be anywhere between $1,000 and $30,000. If you qualify for a Rewards Platinum card, the minimum credit card limit will likely be $6,000. 

Ideally, you should set your credit card limit knowing how much you can afford to repay each month and keep your expenses lower than this level. With most credit cards, you should have the option of requesting a credit card limit increase at a later time, although you will need to qualify for any increase. With an ING credit card, limit increases are out of the question (at the time this was published), which means you may want to apply for a higher credit card limit from the beginning. Remember that you have the option of decreasing your ING credit card limit at a later time.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How can I increase my Bankwest credit card limit?

When you apply for a Bankwest credit card, you get assigned a pre-set credit limit, which will end up being the most that you can spend on your credit card before having to pay it off. Your credit limit is chosen for you and your current financial situation, and you should remember not to overspend, irrespective of the limit, in order to avoid racking up a massive bill.

However, banks and lenders understand that your needs will change, and have made it possible for you to increase your credit card limit, allowing you to get extra cash when you need it most. Moreover, with a higher spending limit, you may be able to get access to certain perks and benefits with your Bankwest credit card.

To increase your Bankwest credit card limit, you can visit any of the bank’s branches or call 13 17 19 and follow the steps outlined.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.