Debit Cards Might be the Way Forward for Rewards

Could debit cards become the next battleground for frequent flyer points and travel perks?

It might sound unlikely. For years, credit cards have dominated the rewards market in Australia. But from 1 October, changes to interchange fees will make rewards credit cards considerably less lucrative for banks – while debit cards face a much smaller hit. And there’s already a bit of evidence overseas to suggest that such a market exists.

Wait, why debit cards?

To be clear, credit cards aren’t going anywhere. Even after the Reserve Bank of Australia’s (RBA) interchange fee changes take effect on 1 October 2026, rewards credit cards will remain a viable way to earn frequent flyer points. But, there’s little doubt that the economics of offering those cards are about to get tougher.

Currently, consumer credit card interchange fees are capped at 0.8% of the transaction value. From October, that cap will fall to 0.3%. By comparison, the debit card cap will fall from 10 to 8 cents (or from 0.20% to 0.16% for percentage-based fees). Proportionally, this is a much smaller reduction.

With less interchange revenue coming in, banks will increasingly need to rely on other sources of revenue such as annual fees and interest. We’re already seeing reductions in credit card benefits from major banks, with sign-up bonuses, earn rates and other benefits such as complimentary insurance affected.

Also, debit cards are inherently simpler products, and thus cost less for banks to provide. There is no credit or interest-free lending to fund, and a bank can integrate a debit card into a transaction account that the customer already uses for other banking. The risks of default or delinquency are also much lower for debit products.

So, relatively speaking, this could make debit cards with rewards attached much more attractive to banks after 1 October 2026.

The UK debit card market

We don’t have to look very far to see what this might look like.

The UK’s consumer credit card interchange cap is already 0.3% – exactly where Australia’s cap is heading. And the UK has recently developed a rather interesting market for rewards debit cards.

Hilton launched two Hilton Honors debit cards in 2024. The premium’ £150 (~AU$308) Hilton Honors Plus Debit Card offers a standard sign-up bonus of 15,000 Hilton Honors points and Hilton Honors Gold status. This gets you free breakfast/breakfast credit at Hilton Hotels worldwide, although some hotels are more generous than others.

IHG’s new Revolut-backed debit card range includes a free product as well as an £18 (~AU$37) per month premium version. The premium IHG x Revolut Elite debit card comes with 15 Elite Nights and Platinum Elite status.

Marriott also offer two debit cards, coming with small sign up bonuses, elite status and nights, and a free night voucher worth up to 50,000 points, depending on yearly spend.

United Airlines is the first airline to join the party with a rewards debit card. It costs £175 (~AU$359) per year and offers bonus MileagePlus miles, Premier Qualifying Points and other United benefits.

These aren’t necessarily direct substitutes for the points-earning credit cards we’re used to in Australia. But, that’s probably the point.

There’s scope for debit card providers to sell an ongoing bundle of points, status and travel benefits – especially for new entrants to a market – avoiding the big up-front costs of a sign-up bonus. The annual or monthly fee becomes an important part of the economics, and they don’t need the infrastructure for issuing credit cards, which also means less friction for customers.

What we see in Australia now

Of course, there hasn’t been a hotel-backed credit card in Australia for some time, and United partners with Virgin Australia – so we’re unlikely to see a direct-earn United card launch in Australia.

However, there are already signs that the market could be heading in the rewards-debit-card direction. Revolut, with its new Ultra plan, is perhaps the most obvious example.

For $99.99 per month or $999 a year, Ultra combines a debit card with travel and lifestyle benefits including unlimited airport lounge access, airport Fast Track, complimentary eSIM and a collection of included partner subscriptions. And, for those who care (and I know there are some), the card is metal with a platinum finish.

Revolut is basically taking the fight into a market long associated with premium credit cards, stepping away from its more basic travel-card identity. It even has announced plans to open its first branded airport lounge at Copenhagen Airport in 2027, with more European locations planned.

Apart from Revolut, options in Australia are pretty limited at the moment. A decent option is a Virgin Money Go account, offering a fixed eight Virgin Money points per transaction which can be transferred to various partners.

You can also get a Qantas Pay card, although that earns one Qantas Point per $4 spent. Bankwest used to offer a Qantas transaction account that earned points per transaction, although this was discontinued in 2025.

Can rewards debit cards become viable?

Of course, credit cards still have advantages that debit cards can’t replicate, and there will continue to be plenty of people willing to apply, to get a strong points earn rate and useful benefits. Credit cards are great for holds when you travel, or if you simply need a bit of extra cashflow. It’s also a lot less painful to deal with fraud if it’s the bank’s money.

But, if earning points from credit card transactions becomes materially less profitable, banks have two choices: extract more money from credit cardholders elsewhere, or find another way to reward their customers. Debit cards might provide that other way.

Do you think Australia will see an expansion in the rewards debit card market? Share your thoughts on the AFF forum.