Australia’s major banks are preparing to fight back against the Reserve Bank’s proposed overhaul of the payments sector, warning the reforms could dramatically reshape credit cards, loyalty programs, and digital payment services across the country.

The central bank last week released a consultation paper outlining plans for sweeping changes to interchange fees, the charges paid between financial institutions whenever customers make Visa or Mastercard purchases. The proposals caught many banking executives off guard, particularly the scale of the reductions being considered.

Several industry figures have privately warned that the cuts could severely damage the economics behind credit card rewards schemes. Banks are now reportedly weighing options that may include reducing the value of rewards points, cutting loyalty benefits, or increasing fees tied to cards and related banking products in an attempt to recover lost revenue.

Some institutions are also reassessing the cost of supporting digital wallet platforms. At least one major bank is understood to be considering whether Apple Pay remains financially viable if the proposed reforms proceed. Banking executives have argued that mobile wallet providers, particularly Apple, benefit heavily from Australia’s payments infrastructure while operating outside many of the same regulatory pressures faced by local financial institutions.

Apple Pay has also been criticised in the past because Apple restricts contactless payment access on iPhones to cards stored within its own digital wallet ecosystem.

The proposed changes are shaping up to be the most significant overhaul of Australia’s payments system since reforms introduced in 2003, when the Reserve Bank allowed retailers to impose payment surcharges and moved to limit interchange fees.

While banks appear to have broadly accepted plans to phase out card surcharges, they are far more concerned about the proposed fee reductions. The RBA estimates the changes would reduce interchange fee revenue across the industry by around $880 million each year, although the central bank acknowledged broader economic impacts may be difficult to predict.

The RBA believes consumers could collectively save around $1.2 billion annually if payment surcharges disappear entirely. However, banking executives and industry analysts warn those savings may not fully materialise if retailers raise prices to recover payment processing costs through other means.

The central bank also noted that processing card payments has become cheaper than handling cash transactions in many cases, undermining the original reasoning behind surcharge rules introduced more than two decades ago.

Under the Reserve Bank’s preferred model, the domestic credit card interchange fee cap would fall from 0.8 per cent to 0.3 per cent per transaction. The proposal would also remove the current weighted-average benchmark of 0.5 per cent.

Banking sources say the proposed reduction is far steeper than anticipated. Some major lenders had reportedly expected the cap to be lowered only to around 0.45 per cent or, at worst, 0.4 per cent.

The RBA pointed to similar interchange caps already operating in Europe and the United Kingdom as justification for the proposed level. However, the Australian Banking Association previously argued that similar overseas reforms resulted in higher consumer fees, fewer card products, and reduced access to credit.

The debate has also reignited concerns over uneven competition within the payments industry. American Express, which operates under a different model, would not face the same interchange fee restrictions under the current proposal. Technology companies and digital wallet operators also remain largely outside the Reserve Bank’s direct regulatory authority.

History suggests banks may again look for ways around the reforms if they are implemented. Following the 2003 changes, several Australian banks rapidly expanded partnerships with American Express in an attempt to offset the impact of interchange cuts affecting Visa and Mastercard products.

The Reserve Bank acknowledged in its consultation paper that regulation surrounding digital wallets and mobile payment systems remains limited under existing legislation. The Federal Government has already begun reviewing the Payment Systems Regulation Act, including possible changes that would broaden the definition of payment system participants to include digital wallet providers and buy now, pay later companies.

The battle over interchange fees is now expected to intensify as banks, retailers, card networks, and technology firms prepare formal submissions to the Reserve Bank before the consultation deadline on 26 August.

Whether the RBA softens its position remains unclear, but the banking sector is signalling it will strongly contest reforms it believes could permanently alter the economics of Australia’s payments industry.