Loyalty & Reward Co read with particular interest an article by Grant Halverson recently on the Australian Productivity Commission (PC) Final Report into Competition in the Financial System. The PC recommended, amongst other things, reducing interchange fees to zero.
What are interchange fees?
In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant.
Interchange fees are particularly important for Qantas Frequent Flyer because they cover the cost of Qantas Points issued to members using Qantas-branded credit cards.
If interchange fees are reduced to zero, it will be very hard for banks to continue offering Qantas-branded credit cards as they’ll no longer be able to cover the points cost.
This would be disastrous for Qantas Frequent Flyer. It’s widely-known in the industry that a significant proportion of revenue comes just from Qantas-branded credit cards, meaning if this change was implemented hundreds of millions of dollars of annual revenue would be at risk.
Qantas are well aware of this threat and have been innovating their pants off over that last few years, delivering new products to diversify their business.
To the detriment of their members, they’ve also reduced the value of points in certain areas (a $100 Myer gift card was 13,500 points in 2011 but now costs 16,810 points) while maintaining expensive ‘carrier charges’ for flight redemptions which don’t apply to cash bookings. Those record profits need to come from somewhere.
Qantas Frequent Flyer has been the darling of the Qantas Group ever since GFC when it carried the ball while all other divisions (excluding Jetstar) were in the red. Is Qantas Frequent Flyer about to face its own GFC, a ticking-time bomb thrown by a Productivity Commission who don’t see a valid justification for merchants covering the cost of points?
Philip Shelper is a loyalty management consultant based in Sydney, Australia who obsesses about everything to do with loyalty and rewards. His company Loyalty & Reward Co are a leading loyalty consulting firm.
Phil is the author of Blockchain Loyalty: Disrupting loyalty and reinventing marketing using cryptocurrencies. Buy the book.
www.blockchainloyalty.io is a global resource centre for everything blockchain loyalty.