Right now, banks rely heavily on interchange fee revenue, worth hundreds of millions of dollars, to bankroll airline points and perks on rewards cards, and the Reserve Bank’s decision forces them to rethink how these products make money in a market where customers are strongly attached to points, sign-up bonuses and earn rates. Reward programmes have become a key battleground in credit cards, with many Australians choosing their plastic based on how quickly they can accumulate flights or upgrades rather than on fees or interest alone.
Behind the scenes, the new 0.3% cap means banks will probably look to plug the revenue gap by lifting annual fees, tweaking interest rates or simply buying fewer frequent flyer points from airlines rather than immediately gutting point earn rates across the board. Industry commentators suggest it would be risky for any bank to slash points too aggressively if rivals hold their ground or pull different levers, because that could leave their cards looking weak and slow down new applications. Some banks have already signalled their thinking, with one major institution recently stripping back its own in-house rewards programme by cutting most global transfer partners, leaving only direct ties to the two main Australian airline schemes.
For the airlines, the pressure is uneven. Both Qantas and Virgin’s Velocity programme look set to feel some pain if banks cut back on point purchases, but Velocity seems more exposed because it leans more heavily on bank-linked rewards products than its larger competitor. A greater share of its members earn points through indirect cards tied to bank reward ecosystems rather than through co-branded cards, which leaves the programme more at the mercy of banks’ internal economics. Qantas appears better insulated thanks to a wider partner network that lets members earn points through retailers, utilities and other partners, plus a renewed push to offer more status credits from on-the-ground spending rather than flights alone, giving banks a cheaper and more flexible incentive to offer than traditional points.
Looking ahead, the loyalty landscape looks like it will shift rather than collapse, with banks likely to fine-tune earn rates, welcome bonuses and benefits instead of abandoning rewards altogether. Status credits could become more prominent as a lower-cost carrot for banks to dangle, and direct-to-consumer sales of points seem set to grow as programmes try to diversify revenue and keep engaged members topping up balances. With a few months before the changes land, frequent flyers are being nudged to maximise current earn rates while they last, as banks study their portfolios and quietly decide which cards to trim, which perks to cull and how to keep rewards attractive in a tighter regulatory environment, especially at a time when one leading analysis values the Qantas loyalty programme alone at about $10.2 billion, underscoring how central these schemes have become to airline and bank economics.
