The Reserve Bank announced big changes to Australia's credit card system in 2002 that are having a range of positive and negative effects for consumers. The reforms involve opening up the card industry to non-bank players, cutting the interchange fees levied on all card transactions by 40 per cent or more. A new cost-based interchange fee system came into force in October 2003. Also, since January 2003, merchants are allowed to charge credit-card customers higher prices than cash customers.

Overall, it is believed the changes will mean a payments system where consumers need to take more care in selecting how they shop and what methods of payment they use. The onus is on consumers to choose more carefully from a wider range of credit cards and consider other payment options like cash and EFTPOS. Less-generous rewards programs with higher annual membership fees will mean cardholders should review their credit card choice to ensure they end up with the product that best suits their circumstances.

The specific impact of these changes on consumers is as follows:

• Prices may be higher for some goods and services when using a credit card because retailers will be able to discriminate on prices between different methods of payment. Use cash, EFTPOS and debit cards where possible, although reforms in this area are on the way too. Qantas and Telstra now charge customers an extra 1 per cent or so for using credit cards. Caltex is also allowing its franchisees to apply credit card surcharges as they see fit. Many more small and mid-sized companies have introduced card surcharges or plan to do so.
• Credit card-based reward programs are now less generous. Caps on the number of points that can be earned are growing and the number of points offered per dollar of spend is reducing. Annual fees for reward programs are increasing.
• Credit card annual account fees are rising as banks seek to recoup revenue lost from cuts to interchange fees. This is often being done by adding a rewards program fee separate to the annual card fee.
• Reward programs tying into the Qantas frequent flyer program are most affected by the above measures. Cards offering Qantas points either now have very high fees or are available only on American Express and Diners Club cards - which are less widely accepted.
• More credit card options are becoming available to consumers as the market is opened up to new providers - banks are no longer be the only issuers of credit cards.

The bottom line for cardholders is to identify exactly what it is you value in your credit card and review the card costs versus these benefits. The positive aspect of the reforms is there will increasingly become available a wider range of options targeted at different types of card users for you to choose from.