Credit card shake-up has costs and benefits

Proposed reforms to the credit card system by the Reserve Bank
could see credit shoppers paying more for goods and services than cash customers.

The RBA is pushing for the biggest change to credit cards since the introduction of Bankcard in 1974.

InfoChoice welcomes the RBA’s proposals as measures that will increase competition overall and bring benefits to consumers in lowering the cost of credit. However, like other deregulatory measures in banking in recent years, there will be a downside.

InfoChoice executive director Chris Gosselin said: “Consumers need only to look at what’s happened in the home loan market over the last decade to see what is in store for credit cards should the RBA’s recommendations proceed.”

The proposed reforms, released today for community and industry consultation, signal the next big chapter in financial deregulation which began in the early 1980s.

The RBA proposes that non-financial institutions be allowed to issue credit cards, that retailers be allowed to charge different prices to customers paying by credit card, and that the fees banks charge each other to reconcile credit card transactions (and indirectly pass on to consumers) be reduced to better reflect the actual costs of the process.

“To make the most of credit card deregulation will require a more watchful approach to credit use from consumers. This is at odds with the way we use credit cards currently – an emphasis on convenience and little attention to card interest costs despite a sensitivity to rates,” Mr Gosselin said.

“This year has already seen an injection of competition to the credit card market which now sees interest rates varying from 11% to 17.5%, yet consumers have been slow to react.”

InfoChoice sees the implications for consumers as follows:


  • A lowering of the general level of card interest rates and more cards offering discounted rates.
  • Lower general level of prices as the fees banks charge merchants – which get passed on to consumers – fall
  • A wider choice of credit cards with major retailers and specialist credit card providers entering the market.
  • Enhanced ability for consumers to negotiate discounts in return for paying cash

Possible costs

  • A surcharge on cedit shoppers of 2 to 4 per cent meaning they pay higher prices than those who pay cash or use a debit card
  • Less-generous reward schemes attached to credit cards, currently being subsidised by credit card profits
  • New or higher fees levied on other aspects of card use as financial institutions seek to recoup revenue lost on interest margins and lower interchange fees.