Now, after a second major move against interchange, the Australian credit card industry is experiencing higher consumer rates and fewer rewards, as Canstar reports down under. With Mercator’s global view, we covered Australia many times, including here, here, and here, among others.
- ANZ has reduced the number of frequent flyer points its credit card customers can earn, while three Westpac-owned banks will lift a range of credit card interest rates.
- From today, changes to minimum spend and points earned will apply to ANZ Rewards, ANZ Rewards Platinum, ANZ Rewards Black, ANZ Frequent Flyer, ANZ Frequent Flyer Platinum and ANZ Frequent Flyer Black credit cards.
- George Bank, Bank of Melbourne and BankSA will increase the purchase rates and cash advance rates across a number of their credit cards from 9 April.
This is another example of the unintended consequences of credit regulators who fiddle with the credit card interchange model. Eliminate one revenue stream and expect to see something else in the model change. Tighter credit, less rewards, higher interest.
The revenue dynamics of credit cards is simple. On one side of the fence, you have merchants who use the credit card payment rails to increase sales, eliminate the cost of handling cash, and satisfying their customer needs. They pay interchange.
On the other side of the fence, you have card users who rely on payment cards to exchange value for goods and services. If it is a credit card, they rely on a line from an issuing bank. Credit has risk and with risk comes to interest, the price you pay to carry the debt.
So, in this country/continent, regulators frequently tangle with the credit card business model. Reduce rates, reduce fees; banks be damned. In the most recent version, the Australian Productivity Commission suggested the elimination of credit card interchange.
So many other things to fix in this beautiful country. For instance, a McDonald’s Quarter Pounder with cheese meal averages $5.79 in the US, while the same meal averages $6.68 in US dollars, based on the current rate of exchange on AU$ 9.40.
With the World Bank’s latest numbers out for GDP, Australia lags at 2.0%, down from 4% in 2000, while Canada sits at 3% and the U.S. saw 2.3%, a reason that the market needs more focus on stimulating the economy than putting cost accounting into banking and credit card payments.
The interchange strategy does not work without trimming down credit availability, which drives the economy. Or, perhaps, just fix the price of a quarter pounder with cheese.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group