Six billion Qantas points slashed in credit card overhaul
Qantas discovers that loyalty pays off
I love my frequent flyer points but, with young children, I rarely fly anywhere far to accrue them. Instead, my strategy is to flush every possible dollar through my credit card.
Last year my family of four used Qantas points to travel from Hong Kong to London, return, for free. Instead of paying $10,000 to get to Britain with a stopover, we spent only $4000 on a return flight to Hong Kong.
But if you’re like me, there’s distressing news.
A new government cap from July 1 on the hidden cost of credit card transactions, intended to stop merchants overcharging customers, is going to stop our points. Or at least seriously curtail them.
So-called interchange fees are charged by the bank that issues your credit card to the merchants where you use the card. Today the fees are up to 1.7 per cent of the transaction amount on premium cards, but in just over three weeks they will be limited to 0.8 per cent on nearly all cards. (Note cards issued directly by American Express, rather than an Amex from a bank, are unaffected).
This is why the big four are waging war on their Amex cards. as they scramble to preserve profit margin.
But all premium cards will be affected – especially those that earn frequent flyer points. And Qantas cards are the ones Aussies love the most.
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Exclusive analysis for Money suggests more than 2 million Qantas frequent flyer cards will shortly have their “earn rates” slashed – the number of points you earn per $1 you spend. The figures from comparison site Finder are based on the size of the credit card market and the spread of products (21 per cent offer Qantas frequent flyer points).
Already the earn rate on one in three Qantas cards has been cut to counter the coming loss of revenue. That represents a collective detriment to customers across the country of some 6 billion frequent flyer points each year – or more than $100 million in lost value annually.
Finder spokeswoman Bessie Hassan says this works out close to 48,000 Qantas return flights to Europe valued at $2000.
“While the everyday consumer may not know what an interchange fee actually is, the implications of the Reserve Bank changes will be huge for rewards credit card holders,” she says.
Based on the average credit card spend of $18,987, the typical Qantas credit card will earn 4979 fewer points a year (on changes announced so far). The loss in dollar terms ranges from $81 to $242 (each Qantas frequent flyer point is worth about 1.7¢).
Customers with an ANZ Frequent Flyer Platinum card will have 14,240 fewer points a year, although ANZ has entirely abolished its annual fee on Qantas cards for the first year, which actually makes this an attractive card now. The least affected in terms of points changes we know are cardholders with Citi Qantas Signature Visa, NAB Qantas Rewards Platinum Card and Westpac Altitude Qantas Black – they’ll lose only 4747 points. (All figures use average spend).
“Phew! I have my frequent flyers with another airline,” you may be thinking. But you’ll find it’s similar.
The good news is, after the change to interchange fees, points collectors who are typical spenders should still on average come out ahead based on the Qantas experience so far (and see my tips for how to maximise your points – not your spend – to combat the clawback).
Note too there are huge giveaways at the moment on sign-up – up to 90,000 instant Qantas points – that could incentivize your switch to a card with more generous conditions. On Monday, Qantas itself also seized the opportunity to grab market share with a new launch: The Qantas Premier MasterCard with $1 earning you one point if spent in Australia, 1.5 if transacted overseas and two if you’re buying a Qantas product. It sounds good but in reality represents similar value to the cut-down Qantas cards.
Over time of course, issuers of existing cards could look to recoup their interchange cash by increasing annual fees – or upping interest rates. (But if you don’t clear your balance in full each month, you shouldn’t use these expensive cards in the first place).
Frequent flyer addicts will need to be vigilant about their value going forward.
Meanwhile, the question I’m asked most often is: “How does it relate to the credit surcharges we are so often forced to pay?”
Firstly, large merchants are already banned from charging more than the actual cost, and from levying a flat fee, and small ones will be from September.
Secondly, the imminent cap on background or interchange costs to merchants should, theoretically, reduce credit card surcharges for customers (with the exception of pure Amex cards that don’t fall under the interchange rules). The Reserve Bank is on record saying businesses should pass on the savings and, eventually, this will give the economy a nice little boost.
We’ll see what happens. Because the true-cost surcharging regime has so far seen some merchants apply a charge at the checkout where previously there was none.
How to maximise your Qantas points and combat the clawback
· Did you know Bpay payments attract no points with many rewards cards? However, settling ALL your bills via a direct transaction with a provider could dramatically up your points. Just check there’s no credit card surcharge to undo your advantage.
· Further to the last tip, some – but not all – schemes exclude any utility, Tax Office or government payment from points. There might be an opportunity to earn more with a different card.
· Finally some good news for renters… many real estate agents now offer credit card facilities, which means you could turn this significant annual expense into free flights (check that the payment system they use allows points). Say you pay $500 a week in rent. If your card awards one point for $1 spent, there’s an extra annual 26,000 points. Take that mortgage holders!
Nicole Pedersen-McKinnon is a commentator and educator who presents her Smart Money Start. fun financial literacy incursion, in high schools around Australia. Follow Nicole on Facebook .