Credit card reward schemes are predicted to continue to become less generous, as the Commerce Commission clamps down on card fees.
Since December 1, domestic Visa and Mastercard payments have been subject to new caps on interchange fees, which are paid to the card issuer for each credit or debit card transaction processed. Caps for foreign-issued cards come in next May.
It is the second stage of changes to the rules for these fees. The first step, in 2022, led to a reduction in credit card rewards schemes and this latest move is already having similar effects.
BNZ said it had reviewed its credit card rewards programme to ensure it was sustainable under the new interchange fee caps. Customers will have to collect more points to redeem rewards.
From February 3, its cashback rate drops from $1.28 per 200 points to 94c.
Kiwibank also dropped its Airpoints partnership this year. It said increased costs and changes to the interchange fee regulations affected the value and viability of the reward programme.
“The alternative to closing the products would be to reduce the rate at which points are earned or to pass on increased costs through higher interest rates — options we believe are neither fair nor in customers’ best interests, as it would mean that customers who do not repay their balance in full every month would further subsidise rewards for those who do,” said Kiwibank’s chief customer officer of retail, Mark Stephen.
Claire Matthews, a banking expert at Massey University, said she expected more pressure to come on credit card rewards.
“The rewards have to be paid for from somewhere, and the interchange fees have been the primary source — to an extent, the rewards were a reimbursement of a portion of those fees to cardholders. If the fees are lower, the funds available to cover the cost of rewards will be lower, and therefore the rewards have to be reduced.”
David Cunningham, chief executive of Squirrel and former chief executive of The Co-Operative Bank, said the biggest problem with credit cards was that interest rates were still high and had not moved a lot compared to the OCR.
“Those who pay off their balance every month are subsidised by those who don’t. The best option is a low-rate card if you use it as a debt instrument, but those cards don’t have rewards.
“Having a low-rate card if you don’t pay off your balance, or a rewards card if you do pay off your balance, is the best option. Sometimes you have both — one for each purpose.”
Consumer NZ said its analysis showed that credit card reward schemes were only benefiting big spenders who used their cards frequently and paid off the balance in full every month.
“People would generally need to spend $25,000 on their cards over two years, and not pay interest on it, to make a rewards scheme worth the fees that the cards charged.
“Low spenders, and those with interest-bearing debt, don’t benefit from rewards and are effectively subsidising high spenders. We don’t think this is fair, so we have supported the regulation of interchange, knowing this would likely result in card issuers scaling back rewards programmes, increasing card fees or cancelling schemes altogether,” a spokesperson said.
rnz.co.nz
