Is the RBA incompetent and trying to be too clever with interchange fee regulation?

[Plutonus]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Qantas has priced frequent flyer points (the amount that Banks pay for them) at the exact amount that soaks up all the interchange. Interesting isn't it? Remember when Qantas also changed the rules a few years back and made all by 1 card into a direct points earning card? This is how Qantas owns the space and controls its liability

The hypothesis that the RBA looks at is to remove interchange completely and see what would happen. Rewards would disappear. Thats it.

That sounds like a clever decision by QF which the banks agreed to. So the RBA is trying to indirectly regulate airlines and their loyalty programs now? Seems outside their scope.

That is undisputed.

I dispute it. It is likely that rewards would disappear if interchange was removed, at least as we know them now. It would be naive to think that would be the only change, as alleged.

The end result is the same - You get to your destination

With an airline, the way that you get there, the service that you receive, the large seat/bed that you enjoy, the food that you eat, the flexibility of the ticket, the luggage allowance are all different on each ticket and you pay for that willingly for the benefits as the consumer directly to the airline.

With a payment, the journey and the destination are the same. There are no frills with the payment. It doesn't arrive any quicker however the merchant pays more for it for no other reason than the card type and your choice to use that card.

Using your airline example the expectation would be that you would be in Business class without paying for it and everyone in economy would be subsidising it.

I think you're characterising the journey as the basic mechanics of processing a payment, which would be akin to a flight being the physical movement of your body. The journey of a card payment is more, in my opinion. Fly business class, or use a premium card, and you receive perks.

Isn't it that business class subsidise the cheap economy fares currently? Nevertheless I think it is a poor metaphor as the two aren't really that similar.

In the end, different cards and fees promote competition, which in turn promotes improvement and innovation. Once you control the market everyone is the same and there is no competition.

 

[Kangol]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Qantas has priced frequent flyer points (the amount that Banks pay for them) at the exact amount that soaks up all the interchange. Interesting isn't it? Remember when Qantas also changed the rules a few years back and made all by 1 card into a direct points earning card? This is how Qantas owns the space and controls its liability

Where did you get that info from? Surely it's not public knowledge. What is the actual dollars and cents amount that QFF sell points to banks for?

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Where did you get that info from? Surely it's not public knowledge. What is the actual dollars and cents amount that QFF sell points to banks for?

Its common knowledge that QF charged the Banks $0.01 per point. Wholesale weighted average interchange is 0.50%. Cap at 0.80%

Most cards now pay at the rate of $2 = 1 point (or 1/2 of $0.01) or there abouts.

 

[BacchusMarsh]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Its common knowledge that QF charged the Banks $0.01 per point.

If you round, perhaps.

Mods please note: "you" does not automatically mean ad hominem.

 

[trippin_the_rift]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Where did you get that info from? Surely it's not public knowledge. What is the actual dollars and cents amount that QFF sell points to banks for?

Nutcase would have you think loyalty programs are somehow screwing the banks with their high cost per point. In reality, some FFPs are selling points to banks at below the average weighted cost of transport. For FFPs, it's a drug - an easy revenue channel and you don't want to give up the revenue, so, you take a hit on the cost per point to keep the bank happy.

I know exactly how much some programs charge each bank, and it's not all sunshine and rainbows for the loyalty program. Each partner channel is scrutinized by customer value, for example, Westpac customers on average may have higher breakage or lower value redemptions at the FFP level, and thus the program has greater scope to give better pricing to the bank. More sophisticated loyalty programs use propensity models to predict the likelihood of certain frequent flyers actions (aka: remember the Jetstar Mastercard and anyone with income >120K would be DECLINED?), which reflect back on the way points are accounted for under the new standards. These bank contracts also typically prohibit the loyalty program from using the data insights to their advantage. The agreements are VERY one-sided and, as such, don't give incentive for the loyalty program to want to assist the bank outside of the standard customer acquisition side agreements. This is another reason, why Qantas Loyalty for example invested in Data Republic - it's a backdoor way to drive new revenue using the banks own data against them outside of the current commercial agreements.

We will also likely see a bunch of co-brand cards pop-up over the coming year, as it lets loyalty programs revenue share on key elements of the product, thus increasing the net revenue and gives greater scope to award points.

On the RBA side, it's important to remember there are two boards. The payment systems board is supposed to be independent of the RBA board. In this respect, there is (or at least should be) minimal link between outcomes the RBA is claiming to be responsible for (eg: avoidance of recessions). Also, keep in mind that the majority of the PSB board are appointed by the government. Who controls government? => Banks. Who benefits most from surcharges? => Banks.

Follow the money folks.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

If you round, perhaps.

Mods please note: "you" does not automatically mean ad hominem.

Not sure what this is about.

Is there a problem with costs that I have provided? Im happy to be challenged if someone has different intel. Qantas may have dropped their prices recently or cut other deals dependent on volume with individual banks.

$0.01 per point is their standard fee for major issuers.

 

[ermen]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

i would pay 1c a point and buy them in big quantities...
happy to pay the interchange fee for that

 

[trippin_the_rift]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

$0.01 per point is their standard fee for major issuers.

i would pay 1c a point and buy them in big quantities...
happy to pay the interchange fee for that

$0.01 per point isn't real in the sense this amount does not reflect the true value, nor takes into consideration additional factors like use of brand, marketing, cost of transport etc.
So while banks may pay this amount - there is no way in hell Qantas will ever sell to you at this rate. Banks bring branding, potentially new customers and a host of other benefits.

You as a customer bring absolutely nothing at all to the table. You'll buy the miles and redeem for a high-value premium flight and at $0.01 there could be a scenario where there is a loss. Airlines that sell miles direct like this are nothing more than a margin business, putting the entire FFP value chain at risk.

 

[JohnK]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Apologies but this discussion goes over my head.

The thing I never understood is why does it cost 0.45% surcharge to pay ATO using 28 Degress (no points), Virgin Velocity card (1/2 point/$) or Super Premium credit card (earns 1.5 points/$)? Surely the ATO does not pay the ssme transaction fee for each of those 3 types of cards yet the surcharge is the same.

If this change goes some way to fixing this anomaly then I'd be happy.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Apologies but this discussion goes over my head.

The thing I never understood is why does it cost 0.45% surcharge to pay ATO using 28 Degress (no points), Virgin Velocity card (1/2 point/$) or Super Premium credit card (earns 1.5 points/$)? Surely the ATO does not pay the ssme transaction fee for each of those 3 types of cards yet the surcharge is the same.

If this change goes some way to fixing this anomaly then I'd be happy.

Interchange is a strange beast.

The ATO pays "government interchange" which is different and overrides the card type (except for Debit)

https://www.mastercard.com.au/en-au/about-mastercard/what-we-do/interchange.html

Mastercard government interchange is 0.32%

interchange.html

and Visa 0.275%

The acquiring bank will have a margin on top of this as well as scheme fees which run at about 0.10%