The government has endorsed the Reserve Bank's Murray inquiry-inspired review

of payments regulations. Louise Kennerley

by Shaun Drummond

Generous rewards points on American Express' "companion cards" and other

premium credit cards could be wiped out if the Reserve Bank agrees with the

Murray inquiry's proposal to slash the fees banks charge merchants.

The possibility came closer last week when the Reserve Bank of Australia

"designated" Amex's companion cards, along with four other cards –

MasterCard's debit cards, and eftpos, Visa and MasterCard's prepaid cards. It

already regulates Visa and MasterCard credit cards, Visa debit cards and eftpos

debit cards.

The government endorsed this week the RBA's authority on payments in its

response to the Murray financial system inquiry. The central bank's payments

system board will decide by the end of November whether to impose fee caps on

the newly designated cards and release draft rules for consultation.

No card pays as many points or is as generous on credit limits as Amex. American

Express cards typically offer twice the rewards points of their companion cards

because banks receive about 1.7 per cent of every payment made with them –

more than twice as much as the 0.83 per cent average of Visa and MasterCard.

Banks began issuing Amex companion cards a year after the Reserve Bank began

regulating Visa and MasterCard in 2003. The more generous points given by Amex

to bank customers helped it gain some market share against its giant rivals,

although the pair still have more than 80 per cent of the Australian market.

A consultant to the banks has said if Amex was able to pay the banks only the

same fee as Visa and MasterCard, banks would probably stop issuing Amex.

"If the rebate from Amex dropped to the same interchange fee they get from

MasterCard and Visa it would likely mean they would stop issuing the Amex card.

They won't have the money that they used to receive."

Fees are capped

The reason for the difference is that the fees Visa and MasterCard can charge

merchants when they accept their cards are capped by the RBA at an average of

0.5 per cent over three years.

The RBA has regulated and capped these so-called four party schemes because it

remains convinced the fees have a "perverse" tendency to rise when there is

more competition because banks compete with rewards on cards, which they

don't pay for.

RBA head of payments policy Tony Richards said the designation of Amex did not

mean the bank would impose the existing caps on the fees American Express

could charge merchants and noted regulating Amex was one of the more

contentious proposals. But it is clear the central bank agrees with the Murray

inquiry that companion cards look a lot like the Visa and MasterCard payment

system.

"Designation of these five systems will allow a more holistic consideration of the

issues, including issues such as the regulatory treatment of companion cards and

prepaid cards, as the bank continues with its review of the regulatory framework

and considers the case for changes to the framework," he told an Australian

Payments Clearing Association conference on Wednesday.

American Express says capping its fees will reduce competition with its dominant

rivals.

"We hold an unequivocal position that robust competition is the only true way of

guaranteeing efficient markets," a spokeswoman for Amex said. "Regulation, in

particular pricing regulation, is a blunt instrument that inevitably causes more

issues downstream."

Read more:

http://www.afr.com/business/banking-and-finance/amex-rewards-threatened-by

-murray-inquiry-proposal-on-fees-20151022-gkggn0#ixzz3pk1PsreG