Treasurer warns on card loyalty schemes

The Federal Treasurer, Peter Costello, has backed analysts' predictions that loyalty schemes attached to credit card will be pruned in the wake of the Reserve Bank's reforms.

Banks will try to recoup hundreds of millions of dollars that they will lose in hidden fees, resulting in credit card reward schemes becoming more expensive to join and offering fewer incentives. Banks have used the estimated $400 million interchange fees to fund loyalty schemes, but these fees will now be cut by around 40 per cent.

ANZ has already said it will only absorb a loss of $40 million from the $120 million estimated loss in interchange fee revenue. It has flagged that a rise in fees on credit cards will be considered. The other major banks have yet to comment but analysts say it is likely they will follow suit.

Mr Costello said that the big rise in credit card use has been partly fuelled by loyalty schemes, so a winding-back of these schemes is consistent with the Reserve Bank's aims.

The RBA, not the ACCC, will be responsible for ensuring that the banks comply with the changes. RBA officials are playing down fears that consumers will be slugged with higher costs, claiming that new entrants to the credit card market will provide competition and discourage banks from raising fees.