Australia Bans Credit Card Surcharges and Slashes Interchange Fees to EU Levels — Is the U.S. Next?

The Reserve Bank of Australia (RBA), the country’s central bank, announced Tuesday that starting October 1, 2026, it would abolish merchant surcharging for card-based transactions.

Many other provisions associated with this legislation are expected to go into effect around the same time, including capping interchange rates on foreign-issued cards, which becomes effective in 2027.

The result of these actions, the RBA stated is that “Personal credit card interchange caps will fall from 0.8% to 0.3%.” This represents a reduction of approximately 62.5% and aligns Australia with European Union-style caps.

The RBA has also said it anticipates significant consequences following these changes. Credit card rewards programs are expected to decline significantly, and the RBA has stated that banks may attempt to recapture revenue losses by increasing interest rates and/or raising fees.

Australia has made the largest cut to its interchange fees since the EU reduced interchange fees on all credit transactions (to 0.3%) back in 2015.

While Australia lowered its interchange rate, it did so in one fell swoop rather than incrementally lowering it, which would have allowed consumers to adjust. That mean this is much more than a price adjustment; it is a reset of the underlying economics of consumer credit card use.

Why does that matter? Previous attempts to regulate interchange rates — such as those in Europe — reshaped how card issuers structure pricing and benefits. In many cases, these changes were adopted gradually.

While Australia is using the same model, it will make the changes simultaneously, dramatically reducing the time available for consumer adjustment.

The surcharge ban is a positive in terms of eliminating added charges at checkout but the pricing that is associated with paying by credit does not go away. The RBA estimates merchants will save roughly $910 million annually, revenue that currently helps fund card rewards.

Instead, charges have been moved to other areas such as processing fees, which are then distributed through all items being sold. Even though you get the price you see at the checkout counter when you make your purchase, ultimately this fee will become part of the entire price system.

A much larger story exists behind the prohibition of using surcharges on interchange fees (which fund rewards). If more than half of this funding source for reward programs disappears, something must change about how rewards programs will be funded. The changes would “significantly reduce credit card rewards,” said the Reserve Bank of Australia. 

Meanwhile, banks have already issued warnings that they will either reduce their rewards programs or increase fees charged annually to use credit cards, as well as charge higher interest rates. We’ve seen this happen before in Australia, but with such an extreme reduction of funding for rewards, this points to a redesign of personal credit cards.

One key detail stands out: Interchange rates for personal cards are decreasing while interchange rates for business cards remain unchanged.

This creates a two-tiered marketplace in which issuers are free to incentivize commercial products with reward programs — an advantage for those who can currently receive these types of offers. 

The decreasing rewards offered by consumer credit cards, compared to those from business credit cards, demonstrate how rapidly incentive structures can change in response to targeted regulations.

If interchange fees are cut, rewards go down too — and fast. So what happens when you cut interchange fees? The answer from Australia shows us how low-reward cards come. Rewards aren’t free; they’re funded by the bank’s share of the interchange fee. 

In Australia — where interchange fees have been reduced — bank-issued credit cards now offer fewer rewards than ever before. Banks are already adjusting their pricing strategies as a result. For example, a 2% cash back card may drop to 1%. The potential cost of reducing interchange to merchants is lower prices, but at what price?

The Australian reforms simplify checkout. But the party ultimately responsible for carrying the cost of using a credit card is unclear, with consumers absorbing these costs by paying higher prices and reduced rewards. This tension exists in the center of the current U.S. debate.