On the 1st of October 2026, the Reserve Bank of Australia (RBA) cut the interchange cap on personal credit cards from 0.8 per cent to 0.3 per cent and banned surcharges on EFTPOS, Mastercard, and Visa payments. The RBA expects the reforms to save merchants about $910 million a year, and it already accepts that banks are likely to respond by cutting cardholder benefits or raising card fees and interest rates (Australian Frequent Flyer).

Media coverage has largely centred on what individual cardholders stand to lose. For brands, the bigger question is the RBA reform impact on loyalty programs, partnerships, and the economic models behind them.

How interchange funds loyalty points

Each time a member pays with a personal credit card, the merchant pays a fee to its bank. A large share of that fee passes to the card-issuing bank as interchange. The issuer combines interchange with annual fees and interest to fund the rewards on the card. Where the card earns airline or coalition points, the bank buys those points from the program at an agreed price per point.

For many program operators, the margin between that price and the cost of the rewards members redeem is a core part of the commercial model. Bank partners typically buy points in large volumes on multi-year contracts, which makes the revenue predictable and attractive to program owners and investors.

Where the problem lies

Banks buy points from airline, retail, and coalition programs to reward their cardholders, funded largely by interchange (the fee the merchant’s bank pays the card issuer). The new cap cuts average interchange on a personal credit card by about 60 per cent. Issuers can absorb that loss, recover it through fees and interest, or pass it on by buying fewer points or paying less for each one. For any brand that runs a loyalty program or partners with one, that changes the economics of co-brand cards and bank partnerships.

In fact, the effects of the ban are already starting to show. Virgin Money is one of the first issuers to publish earn rate cuts tied to the reform date. Both of its Velocity Frequent Flyer cards reduced their earn rates from 1 October 2026 (eGlobal Travel Media).

So what do the RBA’s Card Reforms Mean for Loyalty Program Economics?

Affected program operators should prepare for the following risks:

Lower bank funding.
With interchange down by about 60 per cent, issuers have less money to spend on points. Pressure is likely to show first at contract renewal. A bank renewing in 2027 will price points against 0.3 per cent interchange, and the program will be pressured to show why its points justify the price.

Cardholder behaviour.
Cardholders are likely to respond quickly when card value falls. In a Point Hacks survey of 4,534 Australian credit card holders in July 2026, 55.4 per cent said they would switch to another rewards card rather than accept lower earn rates, and 60.9 per cent expected sign up bonuses to weaken within six months (Point Hacks).

The sample leans towards highly engaged points collectors, so it probably overstates switching across all cardholders. However, these collectors are often a program’s most valuable members, and the most likely to move their spend when a partner card loses value.

Changes for merchants.
Retailers, airlines, and hospitality businesses now pay lower fees on personal credit cards but can no longer pass card costs on through surcharges. Sources such as the Australian Frequent Flyer, suggest that Qantas as well as other airlines will likely plan to recover lost surcharge revenue through higher fares.

For merchants with their own loyalty programs, lower fees may free up budget for member rewards. Programs facing weaker bank funding may also become more open to retail partnerships.

Which programs are exposed to the interchange reforms

Exposure depends on how much of a program’s revenue comes from personal credit cards on the Visa, Mastercard, and EFTPOS networks. The higher that share, the greater the risk.

Programs most impacted

• Bank owned rewards currencies: funded almost entirely by issuer economics, with no airline or retail revenue to offset the loss
• Airline frequent flyer programs with co-brand cards: points sales to banks are a large, high margin revenue line, and transfer partnerships with bank currencies add further exposure

Programs less impacted

• Coalition programs with diverse partners: card revenue sits alongside retail, fuel, and other partner billings, which spreads the risk
• American Express Membership Rewards: Amex runs a closed-loop network outside the cap, although competitive pressure may narrow its advantage over time
• Commercial card rewards: the cap on business cards stays at 0.8 per cent
• Programs with high foreign card volumes: the cap on foreign-issued cards does not change until 1 April 2027, when it falls from 2.4 per cent to 1 per cent (Australian Frequent Flyer)

Four commercial levers for program operators

Program operators facing lower bank funding have four broad responses. Each carries a trade-off, and operators are likely to combine them.

1. Reprice. Accept a lower price per point from bank partners to protect earn rates and card volumes. This keeps the member proposition intact but compresses margin on one of the program’s most profitable revenue lines.
   
2. Prove value. Use program data to show issuers what a co-brand cardholder is worth i.e., higher card spend, lower churn, and stronger engagement than a standard rewards card. A program that can quantify this has a stronger case for holding its price per point. The analysis takes time and depends on data-sharing terms in the partner contract.
   
3. Devalue. Lower earn rates, raise the points needed for flights and rewards, or both. This is the fastest way to restore margin, and it carries the highest risk. Members notice devaluations quickly, often attracting unwanted media attention and should therefore be handled very carefully.
   
4. Diversify. Grow revenue that does not depend on interchange i.e., non-card partners, retail media, paid membership tiers, and earn on everyday spend categories such as groceries, fuel, and utilities. Diversification reduces exposure over time, but new partner revenue takes years to build to the scale that card revenue reached.

Loyalty & Reward Co’s view is that operators should lead with proving value and diversifying, use repricing selectively at contract renewal, and treat devaluation as a last resort. A program that cuts value to protect margin risks weakening the member engagement that makes its points worth buying in the first place.

Lessons from Europe and the United States

Australia is following a path that other markets have already taken. The European Union’s Interchange Fee Regulation capped consumer credit interchange at 0.3 per cent and debit at 0.2 per cent from December 2015. Average interchange fell by more than 50 per cent, removing an estimated €2 billion a year from issuer revenue. Issuers responded by cutting back loyalty programs and cashback offers, and several introduced card fees (Payments Industry Intelligence).

In the United States, the Durbin Amendment capped debit interchange for large banks from October 2011. Chase ended its debit rewards program on 19 July 2011, ahead of the cap, and Wells Fargo, U.S. Bancorp, and PNC also cut debit rewards (The Christian Science Monitor). Credit cards, which the amendment did not cap, remained the main vehicle for US card rewards.

Both cases show rewards moving towards the products that regulation leaves alone. In Australia, those are American Express, commercial cards, and premium cards with annual fees high enough to fund rewards without interchange. Program operators can expect bank partners to concentrate their spend on points in these segments.

Five questions for program operators

1. What share of program revenue comes from personal credit cards on capped networks?
2. When does each bank partner contract renew, and how is the price per point set?
3. What data shows that co-brand cardholders spend more, stay longer, or engage more than other members?
4. Which non-card partners could grow fastest over the next three years?
5. How would members respond to an earn rate cut, and what would it cost in engagement?

Loyalty & Reward Co have delivered more than 160 loyalty projects across six offices worldwide, including partner and co-brand card strategy across Asia Pacific. To review your program’s exposure to the interchange reforms, contact Loyalty & Reward Co.

Frequently asked questions

How do the RBA reforms affect loyalty program revenue? Programs that sell points to banks for personal credit cards face lower volumes or a lower price per point, because issuers lose about 60 per cent of average interchange on those cards. The impact tends to surface when partner contracts come up for renewal.

Which loyalty programs are most exposed to the interchange cap? Bank owned rewards currencies and airline programs with large co-brand card portfolios carry the highest exposure. Coalition programs with diverse partner revenue are less exposed, and American Express and commercial card programs sit outside the new 0.3 per cent cap.

Should program operators cut earn rates in response? Cutting earn rates restores margin quickly but risks member engagement and the value bank partners see in the program. Loyalty & Reward Co recommend that operators first quantify cardholder value for their bank partners and grow revenue from non-card partners.

What do the reforms mean for merchants with their own loyalty programs? Merchants pay less to accept personal credit cards on the EFTPOS, Mastercard, and Visa networks but can no longer add surcharges. Lower acceptance costs may give merchants room to invest more in their own programs and partnerships.

When does the cap on foreign-issued cards change? The interchange cap on foreign-issued cards falls from 2.4 per cent to 1 per cent on 1 April 2027. Travel, tourism, and duty free brands with high volumes of international card payments can expect lower acceptance costs on those transactions.

Sources

• Australian Frequent Flyer: Surcharges Banned, Lower Interchange Fees, the 2026 RBA Changes Explained
• Point Hacks: RBA interchange reform set to reshape Australia’s credit card rewards landscape
• eGlobal Travel Media: Frequent flyer points face Australia’s great rewards squeeze
• Point Hacks: 2026 RBA changes survey
• Payments Industry Intelligence: Impact of the Interchange Fee Regulation on the European cards market
• The Christian Science Monitor: Debit-card rewards, beginning of the end?
• Australian Frequent Flyer: Qantas to Raise Airfares to Recover Lost Card Surcharge Revenue