Our Q&A with American Express on the RBA interchange fee legislation

Given the RBA’s confirmation of legislative changes on interchange fees and surcharges last week, we took the opportunity to sit down with Robert Gunning, Director of Public Affairs and Communications for American Express Australia and NZ and get Amex’ take on what this might mean for their customers.

I threw Rob some of the more immediate and burning questions I thought Point Hacks readers might have when it comes to how their credit card points earn and features might be affected.

Worth a read is also our quick primer on the difference between ‘Bank-Issued’ and ‘American Express-issued’, or ‘proprietary cards’ – as that’s where different impacts will be felt as a result of this legislation.

Keith: Why should consumers know about the RBA changes – what makes it important?

Rob: It’s important because the RBA have price regulated a key part of the payments system which pays for card benefits, including rewards – this is known as interchange. From 1 July, 2017 Visa, MasterCard and bank issued American Express Cards will be subject to a maximum cap of 0.8% for interchange and a weighted average of 0.5% – the new regulation doesn’t apply to cards issued by American Express directly.

As there will be less money available to fund card benefits, customers could expect to get less value on the rewards and benefits they have come to enjoy. Consumers should be vigilant and aware of the potential for changes in their rewards program, however consumers can be confident they will always get better value per dollar spent with American Express reward programs.

The other key change the RBA have announced relates to credit card surcharges. Starting from September this year, if a large merchant wants to apply a credit card surcharge, they can only to surcharge what its actually costing them to process that transaction.

This will see an end to customers having to pay surcharges that are higher than what the merchant is being charged to accept their credit card. This change will apply to small merchants from September 2017.

Can you explain for consumers what the RBA’s announcement means for them in the short term?

Well, we’ve already seen a number of cards have already had their rewards devalued, due to changes that Visa and MasterCard made to their interchange rates in November 2015. It’s not unreasonable to assume that less interchange revenue in the future to pay for rewards programs will mean further devaluation in the future.

However, American Express is committed to maintaining the superiority of our unrivalled rewards program verses our competitors and for those cards that we issue directly, which are not subject to this regulation, we are confident in our ability to continue to offer rewards rich and fully featured programs.

Also, as I mentioned before, customers should see an end to excessive surcharges when they choose to pay with their credit cards.

Why are American Express cards from banks being treated differently to those issued by American Express directly?

In a nutshell, when a person pays for something with their American Express issued card at a business that accepts American Express, we have a direct relationship with both the business and the person who is purchasing the goods. There is no third party, such as a bank, involved in facilitating that relationship.

The RBA does not regulate payments inside of a single company. What they can do is regulate payments between financial institutions which impact Visa, MasterCard and American Express cards that are issued by banks.

For holders of American Express-issued cards, are they going to see any negative changes to their cards as a result of this legislation?

In the uncertain environment we are operating in, no business is going to guarantee there won’t be change but we’re absolutely committed to offering unrivalled rewards programs that are clearly better than what’s on offer with competitors products; it’s what our brand stands for and this commitment is not going to change.

We’re committed to ongoing investment in rewards. For example, last year we were the first rewards program in Australia to allow customers to use points to pay for any transaction via our app for iPhone and Android and last week we re-launched Local Champion, our app based game that rewards customers with bonus points for being the most frequent spender at the businesses they love.

How about positive changes – anything in the works that you’d like to tease rewards and travel fans with?

While we can’t give any details away at this stage, we are always exploring ways of how we can drive more value for our customers, whether it’s through capabilities like allowing them the flexibility to use their points with retailers like Webjet or Helloworld, expanding our Amex Offers program or bringing on new reward partners.

Our take

What’s missing (of course) from the discussion around these changes are any hard facts on what other banks may do as a result of these changes. We’ve already seen impacts on points earn and transfer rates from a range of banks, and the turmoil looks set to continue.

Given the number of recent changes, there is a question mark around timing of the next round – will other banks wait until the legislation comes into force before devaluing their card offerings further, or will they be on the front foot? Who knows.

It’s also an opportunity for the large banks to rework their product portfolios and customise their credit card offerings to work best for different types of customer.

For example, a small business owner might really value points earn on tax payments with the ATO, but care little about spending more on overseas transaction fees. Some consumers will really value the travel benefits of different cards, while others will just want the most points.

Banks, including American Express, should take this opportunity to look hard at their product portfolios and look at ways they can bundle the right set of benefits for different types of customers, maintaining respectable points earn rates for those that want them, and attempting to innovate in other areas.

It will be an interesting 6 to 12 months as the impact of these changes work their way through.

Thanks to Amex for spending the time to run through their opinions on the RBA legislation.