If Aussies advertised their credit card relationship status on Facebook, no doubt many would choose the option, It’s Complicated. While these complicated relationships take many forms, one common problem seems to stem from each card’s seductive power. The same cardholders who love their credit card for the spending power it offers, also hate their card for the ease in which it allows them to fall into debt.
For some, that little piece of plastic – and the power it holds – is just too appealing. It entices cardholders to splash the cash, even when there isn’t any cash available.
According to new research from debt solutions agency Fox Symes, more than one third of cardholders in Australia have overspent or have been tempted to overspend on their credit cards.
It seems the reasons for this vary. Sixteen per cent say they overspent on their card because their lender offered to increase their limit, allowing them to spend more; 11% blamed the ease of getting approved for a card; while 10% proclaimed it was too easy to meet minimum repayments.
Interestingly, one tenth of those who admitted to overspending said they did so to collect more rewards points. These are the cardholders who love the idea of getting rewards so much that they are willing to go into debt for it.
Smart? We don’t think so. But, it’s really no surprise that Aussie cardholders love earning rewards on their credit card spending. What may surprise them though is that those sought-after rewards may soon become somewhat less rewarding.
Over the past year or so, credit card providers have been scaling back their rewards offerings. In an even bolder move, last month ANZ announced the end of its relationship with American Express, revealing that it would no long offer the high-points-earning Amex companion card.
With experts predicting other card providers are sure to follow suit, making it harder for cardholders to earn rewards by scaling back rewards programs or axing Amex companion cards, this may mean the end of an era for those who love earning big on their credit card spending.
Previously, many of ANZ’s rewards cards offered a ‘companion card’. Providing both a Visa card and an American Express card linked within one account, this gave cardholders the opportunity to choose which card they would use when making a payment.
More often than not, the American Express card would offer a higher points-earning potential than the Visa. So, using the Amex obviously allowed cardholders to earn more points on their purchases, while also providing them with certain Amex-related benefits.
Then, on March 1, ANZ told the world its business relationship with American Express was over. It announced that ANZ cardholders with dual Visa and American Express cards could use them until 5 August 2017, after which, the Amex card would become invalid.
For many ANZ rewards cardholders, this announcement came as something of a nasty shock. So, to ease the pain a little, ANZ amped up the points-earning potential on the remaining Visa card.
How exactly? As an example, the rewards program on the ANZ Frequent Flyer Platinum card increased from 0.75 Qantas Points per $1, to 1 Qantas Point per $1. Similarly, the ANZ Rewards Travel card would now offer 1.5 Reward Points per $1, rather than 1 point per $1.
Needless to say though, cardholders would not benefit from the higher points previously available using their Amex.
ANZ have also introduced a tiered points system. Where cardholders previously enjoyed no points capping on the majority of ANZ rewards cards, they will now earn a certain number of points up to a monthly spend limit, after which their points-earning potential will decrease.
Taking a closer look at that, with the ANZ Rewards card, cardholders could previously earn 1.5 points per $1 on Amex and 0.75 points per $1 on Visa. Now, they will earn 1 point per $1 spent on their Visa on the first $1,000 each month, and 0.5 points per $1 thereafter.
What prompted all this? The scaling back of rewards within the credit card industry can be linked to an announcement made by the Reserve Bank of Australia back in May 2016, regarding some important changes in credit card regulations.
This announcement stated that from September 2016, credit card surcharges would be limited. Companies would be banned from charging customers more than they were paying external providers for accepting credit cards, and surcharges were to be expressed as a percentage instead of a flat fee.
The RBA also announced that it would cap the fees banks received from credit card companies when transactions occurred. No longer allowed to be used as revenue, these ‘interchange fees’ were to be capped at 0.8% of a purchase price from 1 July 2017, where previously they had reached as high as 2%.
This cap was also to affect American Express cards issued by banks as ‘companion cards’, where prior to the regulation changes, companion cards had not been subjected to regulation on interchange fees.
What these changes boil down to is a loss of revenue for card providers. Where once they may have made money on credit card surcharges and interchange fees – which in turn allowed them to offer more incentives on their rewards cards – those lines of revenue were now to be cut back.
Because credit cards are not going to be as profitable as they once were, card providers are choosing to scale back their rewards card offerings, making it harder for rewards cardholders to earn as many points, reducing the value of having a rewards card in their wallet.
As many rewards cardholders would no doubt like to know, why did the RBA make these changes? Well, while they may have impacted negatively on the value of credit card rewards programs, the changes are thought to be better for credit card users overall.
The limit on credit card surcharges is a no brainer. No one wants to pay excessive surcharges just to use their credit card. No one wants to line credit card providers’ pockets when they need that lining for themselves.
And the interchange fees? Businesses accepting credit cards have to pay card companies for the privilege. These are the interchange fees. While larger companies can benefit from discounts for high volumes of transactions, small businesses generally have to suck up all charges themselves.
In fact, according to the RBA, small businesses pay almost five times more on average per transaction than big businesses, due to the discounts on offer. Small businesses can choose to take the hit on their bottom line, or pass on the charge to their customer.
That means, the change in regulations on interchange fees not only provides relief to small business, it can also benefit the cardholder, who pays less in fees to use his card within those small businesses.
There’s no doubt the rewards cards market has been winding down for a while now. An investigation into rewards programs by a prominent credit card comparison site revealed that 64 of 116 cards on offer became less rewarding during 2016.
The investigation found that not only were earn rates tumbling, but points caps were dropping as well. To give you an example, BankWest increased the transfer rate on two of its cards, so that a $100 gift card was now worth 10,000 points, where previously it was worth 8,000 points.
It seems likely that card providers will continue to decrease the value of their rewards programs as they lose revenue thanks to the changes in regulations. Here are just some of the changes that have happened already, or are scheduled this year:
|ANZ: Aside from the aforementioned changes, ANZ dropped earn rates on three of its cards in March 2016.
|Bankwest: From June 2016, points earn rates on its Qantas program decreased.
|Citi Rewards: From June 2017, Citi will redefine ‘eligible transactions’ for earning points, changing both earn rates and transfer rates across its card range. This follows an increased transfer rate and decreased earn rate in March 2016.
|Coles: Coles is not making any changes to the way Flybuys members earn or redeem points as a result of the new cap on interchange fees. Flybuys remains free to join and members earn points on every dollar spent at Coles, as well as on purchases from partner retailers.
|Commonwealth Bank Awards: From 1 May 2016, Qantas Point earn rates decreased and annual fees increased.
|HSBC Qantas: Prior to the RBA announcement, in August 2015, a points cap was imposed, earn rates were reduced and extras were removed.
|Jetstar: From October 2016, a points cap was added, and points-earning potential on BPAY and ATO payments was removed.
|Macquarie Bank: From 11 May 2016, points-earning potential on BPAY or ATO payments was removed. From June 2016, points caps were implemented on new cards.
|NAB: In February 2017, NAB introduced the NAB Rewards credit card points program, a flexible card points program on three of its cards, offering points transfers to Velocity, Asia Miles and Air New Zealand Airpoints, as well as a range of other redemption options.
|Virgin Money: From 1 April 2016, points earn rates were cut, flight benefits were rearranged, and points caps were added.
|Woolworths Qantas: From 11 May 2016, points-earning potential on BPAY and ATO payments was removed.
CANSTAR’s Group Executive, Financial Services & Chief Commentator, Steve Mickenbecker, emphasised the fact that credit card providers have been watering down rewards programs for the past year by making it harder to earn points, or adding points caps.
“We’ve already seen it starting, but ANZ’s is the biggest move – to withdraw the offering altogether. I wouldn’t be surprised if others follow, now that one of them has done it,” he said.
“Make sure you don’t lose sight of it, because there’s a good chance that the card that you bought a while ago may no longer be great for you. There’s going to be plenty of moves in this market.”
Whether or not these changes affect you will depend on the card you have in your wallet – and your relationship with that card.
If you love earning rewards, then this is the time to check out what your rewards card is currently offering – and find out from your card provider whether this offering will change in the near future.
Then it’s up to you to compare this with what else is available on the market. Look at earn rates and transfer rates, as well as other extras the card may offer. Basically, weigh up what you’re paying out in fees and interest against the value of what you’re getting in return.
Quick tip: If you are paying anything in interest on your card – as in, if you don’t pay off your balance in full each month – it’s unlikely you will ever get more back from your card than you are paying in.
But, whether it’s an Amex, a Visa or a MasterCard, whatever card you choose, there are some general rules that can allow you to find the best card for you. In broad strokes, these are:
Considering the changes that have already occurred within the credit card industry – and the continued loss of revenue thanks to those RBA regulation changes – it’s unlikely rewards programs will do an about-turn to become more rewarding in the coming months.
Instead, experts suggest that this is a downward decline, where rewards programs will continue to reduce in value, with other banks choosing to join ANZ in their decision to axe the Amex companion card.
As a cardholder, it’s up to you make the right choice. Its up to you to move past It’s Complicated, to become smarter with your credit cards.
That may mean changing your status to In an Open Relationship, where you get the best out of a number of cards; or to In a Relationship, after finding the perfect card for you; or perhaps, to Separated and Single, after deciding that you’re better off with no cards at all.
Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.
Something you need to know about this card? Ask our credit card expert a question.Ask a question