Credit card fee changes could devalue reward schemes used by SMEs, warns American Express


New card payment regulations, which commence mid-year, could impact how SMEs conduct business but a majority have a limited understanding of the changes, American Express has warned.

Card payment regulations announced by the Reserve Bank of Australia last year are due to come into force from July and will cap the fee that Visa, MasterCard and bank-issued American Express cards charge businesses for each transaction to a maximum of 0.8% and an overall weighted average of 0.5%. Cards that American Express issue directly are not however impacted by the new rules.

Martin Seward, Vice President for SME at American Express said these ‘interchange fees’ are largely used to fund card reward schemes where SMEs can accrue points and redeem them in the form of benefits ranging from travel to entertainment and even paying off card bills.

According to research commissioned by American Express*, 77% of SMEs use credit card rewards points for business purposes with the most using points to cover business travel, flight upgrades and the purchase of gift cards for staff.

When it came to redemption of reward points, on average, over a quarter (27%) of SMEs redeemed over $5,000 worth of points each in the last 12 months.

Seward said he was concerned that 73% of SMEs had limited knowledge of the potential impact on their business of the new rules, including the devaluing of rewards points programs, noting that cards American Express issue directly are not impacted by them.

“We have already seen credit card issuers begin to make changes to their programs, such as reducing earn rates and redemption flexibility offered to card customers,” he said.

“Businesses may see further devaluation by credit card issuers of their rewards programs in the coming months in response to the regulations. Now is the time for SMEs to review the cards to ensure they are getting the best value from their business.”

Other key findings from the research included:

  • Business value: Increased staff satisfaction (39 per cent) and reduced business travel costs (38 per cent) were the top benefits that Australian businesses claimed from using reward points.
  • Rewards reputation: Almost two thirds of SMEs stated they were likely to recommend their rewards program to another business owner. If the value of a rewards program was reduced, 68 per cent of businesses agreed they would be less likely to recommend the program to another business.
  • Low awareness of regulation changes: Over 50 per cent (51%) of SMEs were unaware of the upcoming regulation altogether.
  • The value of redemptions: On average, over a quarter (27 per cent) of SMEs with a business rewards card redeemed over $5,000 worth of points in the last 12 months.

* In December 2016, RFi Group conducted research for American Express involving a survey of key financial decision makers in over 350 businesses across a wide range of sectors with annual turnovers between $2 million and $300 million. The purpose was to understand business awareness of the Interchange Regulation and the importance of rewards within businesses.