This is what was supposed to happen

Indignation at Crikey about the falling value of credit card rewards programs. Here is the offending chart:

Notice the rise since 2003. That date is significant as it was the year the RBA put in its reforms. So this isn’t some example of a lack of bank competition or some conspiracy but the perfectly predictable consequences of regulation. What is more it is the intended consequence of that regulation. The RBA wanted consumers to pay more for credit card use and merchants to pay less. And that is what this all is — the ‘negative price’ to consumers of using credit cards has become less negative because banks have less incentive to induce the to use more cards. That said, as I have noted elsewhere, the merchants are less resistant to that card use and it looks like it has balanced out. So the ultimate RBA goal of reducing credit card use hasn’t happened.

And before you think it is users who have taken the hit, it is likely that the lower merchant fees have been passed on, to some degree, to all consumers (both with and without cards) in the form of lower prices overall. Collusive conspiracy hunters will have to look elsewhere this time.

3 thoughts on “This is what was supposed to happen”

  1. Similar in some ways to the indignation many consumers feel about the recent ATM changes.  While direct fees at ATMs are around $0.50 less than the old foregin fees, many users view them as new charges.  Would be interested if the unhappiness from this indignation outweighs the happiness from having some extra cash in their pocket?

    The implication being that the government should not just focus on creating good regulation, but also on explaining why it is good.  No one expects the public to understand the intricate workings of interchange fees in credit card and ATM markets, but explaining what the regulation is trying to do would be a start.

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  2. Yeah, previously those higher “reward” rates were being paid for by non-credit-card-users (in the form of generally higher prices).

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