The credit card rewards game is changing, and it's not in your favor. But why? Are your rewards about to take a hit?
In a move that has the potential to impact millions of cardholders, credit card reward programs are expected to become less lucrative as regulatory bodies, such as the Commerce Commission, tighten their grip on card fees. This is a direct response to the recent changes in interchange fee regulations.
Interchange fees, the charges paid to card issuers for each transaction, have been capped since December 1st for domestic Visa and Mastercard payments, with foreign-issued cards following suit in May. This is the second phase of a fee structure overhaul, and it's already causing a stir.
Here's where it gets controversial: Banks are adjusting their reward programs to adapt to these new fee caps. For instance, BNZ has announced that customers will need to accumulate more points to redeem rewards, effectively making it harder to earn benefits. As of February 3rd, their cashback rate will decrease, offering less value for the same number of points.
Kiwibank also made a significant change by ending its Airpoints partnership, citing increased costs and interchange fee changes. Mark Stephen, Kiwibank's retail chief customer officer, explained that passing on costs to customers through higher interest rates or reducing point-earning rates would be unfair, especially to those who carry a balance on their cards.
The catch? The funds for these rewards primarily come from interchange fees. With lower fees, banks have less money to fund rewards, leading to inevitable cuts. Claire Matthews, a banking expert, confirms this, stating that reduced fees directly impact the rewards cardholders receive.
David Cunningham, a banking industry veteran, points out another issue: high-interest rates on credit cards. He suggests that the best option for those carrying a balance is a low-rate card, but these often lack rewards. Cunningham advocates for a two-card strategy: one low-rate card for debt and a rewards card for those who pay off their balance.
Consumer NZ's analysis reveals that only big spenders who regularly pay off their balances benefit from reward schemes. For the average cardholder, the rewards may not outweigh the fees. This raises the question: Are credit card rewards worth it for most people?
As the industry adapts to these changes, it's clear that cardholders will need to adapt too. The days of generous rewards might be numbered, leaving many to wonder what the future holds for their credit card benefits.
