Why other banks are likely to follow ASB downgrade of credit card rewards

ASB has downgraded the value of its credit card rewards scheme, but it could be just the first of the major banks to do so.

On November 13✓​, caps on merchant fees, which retailers have to pay to accept credit card payments from customers, come into force.

Retailers and hospitality businesses welcome the caps, but Retail NZ chief executive Greg Harford said credit card rewards were funded by those fees, which meant other banks could make change to their rewards schemes, too.

ASB announced on Thursday that the amount its ASB Visa Rewards cardholders had to spend to earn each of its True Rewards points would increase on October 4 from $150 to $275✓​.

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People carrying its more exclusive Visa Platinum Rewards card will have to spend $170​​ to earn each True Rewards dollar, up from $100​​.

The bank has not explained the move, but Harford said: “The very high interchange rates charged to merchants have been funding the rewards programmes, so it wouldn’t surprise me if the banks look at their rewards schemes before November.”

Retailers in New Zealand pay far more than retailers overseas for accepting credit cards, and Retail NZ headed the fight to get the Government to intervene, arguing banks and credit card companies had no incentive to reduce them.

It launched a high-profile report in 2015 to kick off its campaign.

Retail NZ was successful, and in May Parliament passed the Retail Payment System Act into law to cap fees.

Harford said retailers passed on high merchant fees through their pricing.

This meant that the high-spenders who benefited most from credit card rewards schemes were being effectively cross-subsidised by lower spenders, including poorer households.

“It’s actually worse than that,” Harford said.

“Ultimately the costs are reflected in everyday prices, so the mythical little old lady from Ruatoria who doesn’t have a credit card is cross-subsidising the premium rewards schemes.”

The November 13 price caps would be anti-inflationary, he said.

A survey done by the Restaurant Association, a lobby group for the hospitality sector, reported anger from business owners that merchant fees were so high.

It said 99.26% of members either agreed or strongly agreed merchant fees should be regulated, and 69% of them indicated they would prefer direct regulation.

The Covid pandemic led many consumers to favour contactless payments, which initially drove up retailers’ costs, prompting banks to temporarily reduce, or cancel fees.

ANZ would not discuss whether it was reviewing its credit card rewards schemes.

An ANZ spokeswoman said because of disclosure and notification obligations to customers, it was reluctant to comment on any planned changes at this point.

A Bank of New Zealand spokesperson said: “We are constantly reviewing our product portfolio and how we reward our customers, but we have no changes to announce at the moment.”

At the final vote to pass the Retail Payment System Act into law in May, David Clark, Commerce and Consumer Affairs Minister, said: “It’s vital for consumers that the retail payments system is both competitive and efficient.”

The Restaurant Association said from November 13 in-person debit payments would attract no merchant fees.

Fees on contactless debit payments would be capped at 0.2% of the amount spent, or 5 cents per transaction.

Fees on online debit payments would be capped at 0.6%, and the credit card interchange fee would be capped at 0.8%.