Loyalty apocalypse, or is that white smoke, a change of Rulers in Australia?
The prediction is coming true
For the past year, the common wisdom in Australian loyalty has been that the banks would follow the UK's path once interchange fell: cut the generosity of payment-funded credit card rewards and raise the price of the cards that still carry them. Qantas Frequent Flyer and Velocity credit cards, the two most widely held reward products in the country, were expected to be less generous and be more expensive at the same time.
That prediction is now coming true. NAB has cut redemption value across its white-label card brands. From 1 October 2026, a $100 gift card will cost many more points after a 62 per cent devaluation. Its Virgin Money cards are also being repriced: the Velocity Flyer's annual fee rises with a lower earn rate, and the Velocity High Flyer's fee rises with earn rates cut roughly in half.
ANZ has also moved, changing terms for new customers immediately rather than waiting for the October deadline. The sign-up bonus on its Frequent Flyer Black card has been cut from 130,000 Qantas Points to 80,000, and the $200 cashback offer has been removed entirely. The Platinum card's bonus has fallen from 75,000 points to 40,000, with its $100 credit also axed. Commonwealth Bank has made a similar move on its own Awards program, closing off most of its transfer partners and leaving Velocity as the only remaining option.
Bank-funded credit card rewards in Australia are getting smaller and more expensive. What happens next, and who decides?
What changed, and when
The trigger is the Reserve Bank of Australia's Review of Merchant Card Payment Costs and Surcharging, which concluded in March 2026 after eighteen months of consultation.
First, from 1 October 2026, merchants will see the payment schemes reintroduce restrictions that ban surcharges for customers for paying with eftpos, Mastercard or Visa cards. The RBA is lifting its prohibition on “no-surcharge” rules and expects the schemes to reintroduce those rules quickly.
Second, the interchange fee cap on domestic consumer credit card transactions falls from 0.8 per cent to 0.3 per cent of transaction value, a cut of around 60 per cent; with debit and prepaid interchange also being trimmed. The RBA's own estimate is that issuers (mostly banks) will lose around $660 million a year in interchange revenue, concentrated almost entirely in consumer credit cards, and it notes this figure assumes no change in anyone's behaviour, which is a generous assumption given the behaviour changes already underway.
The UK precedent, read correctly
When the EU's Interchange Fee Regulation capped consumer credit card interchange at 0.3 per cent in December 2015, roughly the same level Australia is moving to now, the effect on issuer revenue was severe enough that some banks closed their reward cards completely. MBNA withdrew its Virgin Atlantic co-branded card, and Emirates, Etihad, Lufthansa, United, American Airlines, Lloyds and TSB followed with closures or exits of their own co-brand programs.
The lesson from the UK is that when the economics stop working, some issuers stop offering the product at all rather than run a smaller version of it. Australian banks are starting with devaluation. Whether some go further, the way UK issuers did, is a live question for the next twelve months, not a settled one.
Where loyalty funding comes from
Here is the part of the story that tends to get lost in the “banks versus loyalty” framing. The cost of loyalty has never been the bank's money, or the RBA's. It has always worked like this:
Customers fund loyalty through the price of what they buy. Every dollar spent on rewards, anywhere in the system, is ultimately paid by consumers through retail prices.
Merchants collect that money first. Until now, a portion of it has gone straight through the card schemes to the card issuers as the mandatory interchange fee. That interchange has funded card-issuer loyalty programs, and because merchants could not avoid the fee, they built it into their prices for every customer, including the large majority who were not the ones earning the rewards. This is an inequity the RBA review set out to fix.
Surcharging was the release valve, and it is being closed. While merchants could recover this cost by surcharging cardholders directly, the inequity mattered less to merchant margins. Once surcharging ends on 1 October 2026, that release valve closes. To offset it, the RBA has cut interchange by around 60 per cent, which frees up that revenue for merchants to keep rather than pass on to card issuers.
What merchants do with that freed expense is now their call. The RBA has not decided to shrink loyalty in Australia; it has decided to stop merchants involuntarily subsidising it through an unavoidable fee. Whether total loyalty investment in the market goes up, down, or simply moves to a different owner is a decision retailers and merchants can now make for themselves.
That distinction matters, as the “loss of loyalty” narrative and the “loss of loyalty funding” narrative are two different claims, and only one of them is actually supported by what the RBA has done.
Five years out: a market that splits in two
We expect the response to split along one line: how much a merchant already invests in its own loyalty proposition, and how much scale it has to do so. The large will get larger.
Smaller and newer-to-loyalty merchants will bank the savings and move on. For a business that never ran a serious loyalty program, the freed interchange is simply margin. The easiest path is to take it, point to the banks and the RBA as the reason card benefits shrank, and spend energy instead on negotiating harder with payment processors for a better acquiring rate. Their proprietary loyalty ambitions, where they exist at all, stay roughly where they are. This partly explains why generic cashback programs and the Banks’ merchant-offer marketplaces are not distinctive or revolutionary.
Large merchants will keep investing and will pull further ahead. The biggest retailers were already paying interchange below the new caps, so this reform changes little about their cost base. What changes is the credibility of their competitors. As bank-funded credit cards get smaller and more expensive, Everyday Rewards, Flybuys and OnePass are the programs positioned to absorb the attention and spend that leaves the credit card space.
Over five years, we expect these programs to increasingly absorb travel reward value too, as balances grow and members convert points into flights rather than earning flights directly on a bank card. But the mechanism that reinforced airline loyalty every single day, tapping a co-branded card at the point of sale, gets weaker as those cards become fewer, pricier and less generous. Grocery and retail loyalty currencies become the default in a customer's mental model of “my rewards.” Airline loyalty becomes something redeemed occasionally rather than something felt daily. That is a meaningful loss of mental availability for the airlines, even if their headline member numbers hold up. The airlines are already aggressively recruiting retail partners to offset this risk. We imagine a queue of bank and airline loyalty salespeople lining up every morning waiting for the retailers to open.
Decisions
Who directly funds a portion of Australian loyalty is changing, but the market has not yet decided how much loyalty Australia ends up with, or who wins the customers as credit card loyalty shrinks in generosity.
That decision now sits with merchants, and the merchants who treat it as a genuine strategic choice, rather than a line item to bank or blame, are the ones who will own the next five years of customer attention.
Ellipsis has spent the past two decades helping merchants and banks make exactly this kind of decision well. If it would help to work through what this means for your company specifically, we would welcome the conversation.