credit cards

How a Central Bank Rate Cut Could Be Costing You More at the Checkout

In early 2026, a quiet but seismic shift quietly took place across Australian checkout counters. The Reserve Bank of Australia (RBA) slashed its cash rate by 0.25 percentage points—a move widely welcomed as a win for borrowers and savers alike. But buried in the fine print of that decision was a less-discussed consequence: the rapid decline—and eventual removal—of credit card surcharges. While merchants cheered the end of extra fees, consumers, especially frequent flyers and those who rely on debit cards, are now facing a new financial reality. The days of waving your plastic without thinking? They may be numbered.

What’s Happening Right Now?

Since October 2025, Australian businesses have been prohibited from charging consumers additional fees when they pay with credit or debit cards—a rule introduced to promote payment fairness. However, the RBA’s recent rate cut has accelerated this change in a way few anticipated.

Previously, merchants could pass on interchange fees—the costs banks charge each other for processing card transactions—as surcharges up to a capped limit. But with the RBA cutting interest rates, banks have significantly reduced the cost of holding credit card debt. This means interchange fees have dropped dramatically, making it financially unviable for many small businesses to continue passing these costs onto customers.

Now, major retailers and service providers are quietly eliminating credit card surcharges entirely. At the same time, some banks are quietly raising annual fees on premium credit cards or increasing reward program thresholds—changes that benefit them while shifting subtle costs back onto consumers.

For example, Qantas and Virgin Australia have already announced adjustments to their frequent flyer programs, citing rising operational costs and changing payment economics. Frequent flyer points earned through credit card spending are being devalued slightly, meaning Australians need to spend more to maintain elite status or earn the same rewards.

A Timeline of Payment Policy Shifts

Understanding how we got here requires looking at the past decade of payment regulation in Australia:

• 2019: The ACCC introduces stricter caps on credit card interchange fees, aiming to reduce merchant costs.
• 2021: Surcharge transparency laws require businesses to clearly display any extra charges at point of sale.
• 2023: The RBA begins lowering interest rates amid cooling inflation, reducing bank profit margins on credit products.
• October 2025: Full ban on credit and debit card surcharges enforced nationwide—no exceptions.
• March 2026: RBA cuts key rate to 3.75%, triggering widespread merchant fee reductions and program adjustments.
• April 2026: Major airlines announce changes to frequent flyer earning rates tied to credit card spending.

These moves reflect a broader global trend toward digital payment democratisation, but in Australia, the speed and scale of change have caught many off guard.

Why This Matters: Who Gains, Who Loses?

At first glance, removing surcharges seems like a consumer win. But the devil is in the details.

Consumers who use cash or EFTPOS daily stand to lose out. Before the surcharge ban, cash users were often subsidising credit card transactions. Now, without that cross-subsidy, some small businesses argue they must raise prices overall—or absorb losses. A 2025 study by the University of Sydney found that 18% of small retailers increased base prices after the surcharge ban, particularly in hospitality and retail sectors.

Meanwhile, frequent flyers are feeling the pinch. Both Qantas and Virgin have confirmed minor reductions in points earned per dollar spent on their co-branded credit cards. For someone earning 1 point per $1 on a standard card, the effective return has dropped by roughly 5–7%. While not dramatic, it adds up over thousands of dollars of annual travel spending.

On the flip side, big retailers and online platforms benefit. Companies like Woolworths, Coles, and Amazon Australia no longer face pressure to offer cash discounts or accept only EFTPOS. This streamlines operations and reduces customer friction—especially important during peak shopping periods.

And for banks, the lower interchange fees mean thinner profit margins unless they find new revenue streams. Some have responded by tightening credit card approval criteria or introducing new “loyalty” tiers that charge higher annual fees for enhanced benefits.

Historical Context: How We Got Here

Australia has long had a complex relationship with card payments. Unlike countries such as Sweden or Canada—where contactless and digital wallets dominate—Australia remains deeply split between cash, EFTPOS, and credit. In 2023, Australians used cash for 28% of all in-person transactions, according to the RBA’s Payment System Board report.

Historically, surcharging was justified as a way for merchants to offset the cost of accepting cards. Interchange fees typically ranged from 1.2% to 2.5% per transaction—costs passed directly to consumers under the old system. The 2025 ban was meant to level the playing field, especially for low-margin businesses like restaurants and salons.

But critics warned that removing surcharging would create unintended consequences. Without clear price signals, consumers might not distinguish between cheaper payment methods and cheaper goods. There’s also concern that vulnerable groups—such as elderly Australians unfamiliar with digital payments—could be disadvantaged if businesses favour card-only transactions.

Interestingly, New Zealand implemented a similar surcharge ban in 2024, but saw little impact on consumer behaviour. Meanwhile, in Europe, where surcharging remains legal with strict limits, merchants still pass on costs—albeit transparently.

Immediate Effects Across the Economy

The ripple effects of the surcharge ban and rate cut are already visible:

• Small Businesses: Many report tighter operating margins. Café owners in Melbourne and Sydney say they’ve had to increase menu prices by an average of 2–3% since late 2025. Others have stopped offering cash discounts altogether.
• Retail Giants: Supermarkets and big-box stores benefit from simplified pricing structures. Woolworths announced in February 2026 that it would phase out “cash-only” promotions, calling them outdated.
• Banking Sector: Major banks including Commonwealth, NAB, and Westpac have quietly raised minimum spending requirements to qualify for reward bonuses on premium cards. ANZ went further, introducing a new “Platinum Plus” tier with a $199 annual fee—up from $149 previously.
• Consumer Behaviour: Early data suggests a slight shift back to EFTPOS and debit cards, though credit usage remains high. The RBA notes that card transaction volumes are stable, but the composition is changing—more debit, fewer revolving balances.

There’s also growing debate about whether the surcharge ban truly benefited consumers. While headline fees vanished, hidden costs re-emerged in the form of loyalty program changes and increased base prices.

Looking Ahead: What Does the Future Hold?

As the dust settles, several trends are emerging:

1. Digital Wallet Dominance

Apple Pay, Google Pay, and Afterpay are gaining traction as alternatives to physical cards. These services often carry lower interchange fees than traditional credit cards, giving merchants another reason to prefer them. Expect more incentives—like waived processing fees—for customers using digital wallets.

2. Loyalty Program Restructuring

Airlines and retailers are likely to redesign reward systems to maintain profitability. Instead of flat-rate points, expect tiered structures based on spending categories or membership levels. This could make earning meaningful rewards harder unless you actively manage your finances.

3. Cash Usage Decline

With no financial incentive to pay cash and fewer businesses offering discounts, cash may become a relic of the past. Already, ATMs are disappearing from suburban shopping strips. By 2030, analysts predict cash will account for less than 10% of transactions—down from nearly 40% in 2010.

4. Regulatory Scrutiny

Consumer advocates are calling for greater transparency around loyalty program changes. The ACCC has flagged a review of “hidden devaluations” in frequent flyer and retail rewards. If passed, new rules could require airlines to notify members before altering earning rates.

5. Economic Pressure on Low-Income Households

For those living paycheck-to-paycheck, even small shifts in reward value can matter. If a $500 flight requires 50,000 points instead of 48,000, it adds up fast. Financial literacy programs may become more important as payment ecosystems evolve.

Final Thoughts: Is It Really a Win for Consumers?

The removal of credit card sur