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?
I would be so happy. So would the rest of the world. Finally Americans will not be subject to a wide disparity in J availability and fares. Like in Europe and Asia there would actually be decent J fares to be had instead of battling Marge from Iowa who uses points for her J fares to London for her and Ralph. These are the people I subsidize by paying exorbitant fares that are 70% higher than if I originated in Asia or Europe.
I’m tired of points gamers making the real world more expensive for everyone else. I am fine using points, sure, but I want the 90’s back when you actually earned them and didn’t Door Dash as Ben did to get free flights.
He’s done FAR worse but they don’t give those secrets up to the readers.
Well, I do too. But in fairness to Ben, the airlines have made it impossible for 90% of their customers to achieve status through flying. I absolutely despise the new model. My AA status is now tied to booking AA hotel stays, which has adversely impacted the choices I have to make, not enhanced them.
Whoops, meant Kyle and Matt. Too many blogs lol.
Australia is on the right track. Credit card hawkers and bloggers are on the wrong track.
This article mentions an up to 4% charge in the U.S. If your extra expenses are 4%, that is notable, not free. For microbusinesses, it can be over 4% if there is a monthly minimum charge by the credit card processor. Costco offers small businesses credit card processing at a decent rate but there is a minimum $20 monthly fee. So if one month there is $200 in business, that’s a 10% charge to the business.
All your reward points are paid for by the merchant in the form of higher fees when reward cards are used. The 2% cash back from the Citi Double Cash card comes directly from the small business’ skin, not Citicards.
I’m torn. I accrue lots of points and miles legitimately through my business by credit card spending but I also pay thousands of dollars a month in credit card fees. I suppose it ultimately works out more or less equally but it’s still tough to swallow tens of thousands of dollars a year in what feels like unnecessary fees.
Kyle, if these new interchange regulations were to go into effect in the US, and airfares had to rise as a consequence, do you think that airlines would begin improving their hard product to compete for a reduced number of travelers?
(I would love it if that happened – a focus on the hard product; just don’t know whether this would be the impetus for that change in focus.)
“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.” A lot of smaller, non-chain places add their cost of credit to credit charges. It’s their actual cost, not an arbitrary add on. However, hotels seem to have a higher % than restaurants and bars. In all cases, I still come out ahead as my worst kick back is 2%, and I’ve never been charged as much as that. Have a $20.00 meal ring up. As soon as you tap your card it charges the appropriate add on % (which I believe is lower for debit cards). Aldi adds a fee; the two big players don’t.
@ this. Aldi only adds the fee if you use a touchless method of payment. Insert cards and you bypass the fee. Check their website if you need evidence
Meanwhile, in other Australian aviation news…
https://www.theguardian.com/australia-news/2025/aug/18/qantas-fine-90m-illegally-sacking-ground-staff-transport-workers-union-covid-federal-court