Card reforms will cost billions: Macquarie

Macquarie Research Equities has released a report called “Credit Cards – It's Deja Vu”, in which it claims that the Reserve Bank's campaign to reform Australia's credit card market will cost banks $2 billion to $3 billion over the next few years. The report paints a similar scenario to the situation in the home mortgage market over the past decade, when new entrants led to a halving of interest margins. Macquarie believes that the outcome will be a more competitive, less profitable credit card industry.

The 100-page report details the current pressures on the credit card market: imminent regulatory intervention, cost blow-outs on loyalty programs, looming competition, and the increasing difficulty in winning new business. Macquarie also warned of the possible entry of “hyper efficient” card specialist companies entering the Australian market. Added to the $2-$3 billion lost on interchange revenue over the next few years, the emergence of new players, in addition to interest rate cuts, could slice a further $1 billion to $2 billion from revenue, the report claims.

Card industry specialists Lafferty Group estimates that the best US card specialists earn about $US200 ($A357) per customer per year compared with an average of just $US20 in Australia. Lafferty predicts that by 2005 the largest share of the Australian consumer credit market will be held by US finance giant GE Capital, not by a bank. GE Capital is already one of the top three players in the Australian credit card market.