Australia just hit reset on payments
In March 2026, the Reserve Bank of Australia announced a sweeping overhaul of the payments system that will take effect from October 2026. The reforms have three main components. First, card surcharges on Visa, Mastercard, and EFTPOS transactions will be banned outright, ending the practice of businesses passing payment costs directly to consumers. Second, credit card interchange fees will be capped at 0.3%, down from 0.8%, bringing Australia in line with the UK and European Union.
To understand why that matters, it helps to know how interchange works.
Every card transaction involves four parties: the cardholder, the card issuer, the merchant, and the merchant's payments provider, known as the acquirer. Interchange fees are paid by the acquirer to the issuer each time a payment is made, and are set by the card networks, such as Visa or Mastercard. They vary depending on the type of card, the transaction channel, and the size of the merchant. Premium rewards cards like gold and platinum products are attracting higher rates. Most cardholders and merchants are unaware these fees exist, yet they flow through directly into the costs both sides pay. Capping them at 0.3% strips an estimated $900 million from the system annually. Third, card networks and payment providers will be required to publish standardised fee schedules, giving merchants far greater transparency when comparing providers. Together, the RBA estimates these changes will save Australian consumers around $1.6 billion per year.
For consumers, the removal of surcharging is a straightforward win. The RBA’s own research found that 76% of Australian consumers want surcharging to stop. Fewer surprise charges at the point of payment, simpler pricing, and a cleaner checkout experience. Even where merchants adjust shelf prices over time, the cost becomes visible upfront rather than appearing only when a customer taps to pay. That kind of transparency matters, particularly in the current cost-of-living environment.
For banks, the picture is more complex.
The rewards equation is changing
Interchange revenue has funded the premium rewards programs at the centre of most banks' card value propositions. From frequent flyer points, bonus earn rates, lounge access to travel credits. These benefits are expensive to run, and a significant portion of that cost has historically been offset by interchange income. When that income drops by more than half, banks face a decision with essentially three paths: absorb the cost, reduce rewards, or replace the model.
Absorbing the cost is unsustainable at scale. Reducing rewards risks alienating the most engaged cardholders, the ones who chose their card specifically for its value proposition and will notice any dilution. That leaves the third path: finding alternative ways to fund cardholder value that do not depend on interchange economics.
That is where the conversation gets interesting.
A different kind of rewards model
Merchant-funded cashback operates on fundamentally different logic. Rather than drawing on interchange revenue, merchants pay to put relevant offers in front of the right customers at the right time. Those customers receive real cash back automatically when they pay with their linked card. The reward cost sits off the bank's balance sheet entirely, funded by the merchant in exchange for measurable, verified customer behaviour.
This model is not new. It has been running quietly in Australia for years, with platforms like PokitPal already powering white-label cashback programs for several banks. The infrastructure, card-linking technology, and merchant networks are largely already built. For banks looking to maintain a compelling cardholder proposition without absorbing higher costs, it is at least worth understanding how the model works.
Importantly, cashback also resonates differently with consumers right now. In a cost-of-living crisis, tangible, immediate cashback lands better than points. Cash back in a bank account is simple to understand and simple to appreciate. That alignment between what consumers want and what the model delivers is not incidental; it is one of its structural advantages.
The deeper opportunity
There is a longer game here, too. As Open Banking matures in Australia, richer spending data creates the foundation for more personalised offers, but contextually relevant cashback tied to what a cardholder actually spends on. That kind of relevance is hard to achieve with a points program. It is much more natural in a cashback environment where offers can be matched in real time to individual behaviour.
For merchants, particularly in margin-sensitive sectors like hospitality and discretionary retail, this model also solves a different problem: not just recovering payment friction at checkout, but building the customer frequency and return behaviour that sustains a business in a more value-conscious market. Banks that facilitate that outcome for their merchant ecosystem create a proposition that works for everyone.
The bottom line
The RBA's reforms won’t be implemented until October, but they should be driving strategic changes today. For the banks, the changes will undoubtedly accelerate a transition that is already underway, away from interchange-funded points toward lower-cost, more transparent rewards experiences. Banks that treat this as a cost problem will spend the next few years defending shrinking margins. Banks that treat it as a strategic opening will come out the other side with stronger cardholder relationships, a more sustainable model, and a rewards proposition that is genuinely aligned with what their customers need right now.
The infrastructure to support that shift already exists. The question is, which banks will start the conversation?
References and further reading:
https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/
