Surcharge ban could end popular free travel insurance perk

Australians may soon struggle to take advantage of free travel insurance policies offered by their premium credit cards, travel agents have warned, as an imminent surcharge ban looks set to hit the generosity of cardholder perks and rewards schemes.

The warning from travel agents about the consequences stemming from the reform to Australia’s payments system comes days after ANZ joined NAB and other banks that announced scaled-back credit card rewards programs and complimentary lounge access ahead of the ban on surcharges that have funded benefits and bonus offerings, coming into effect from October 1.

The Reserve Bank’s changes are aimed at making card payments fairer as cash usage declines, and are expected to cut banks’ revenue by $660 million a year by lowering caps on “intercharge fees”, which are paid by merchants every time a shopper pays for something with a card.

Much of the travel-related coverage of the ban has centred on how it will likely become more difficult to accrue Qantas frequent flyer and other airline points and how bonus point sign-up incentives and earn rates on spending will diminish.

Just as small businesses have flagged that prices may rise as they pass on added costs they will incur processing payments once the ban begins, travel agents say their industry will be particularly susceptible.

Justine Waddington, director of Encounter Travel, said agents already have to contend with dwindling commissions on the products they sell.

This is especially true of airfares, with Waddington saying commissions tend to be between 0 and 1 per cent.

“Selling an airfare with little or zero commission means a customer’s credit card payment can see us face a loss for selling that airfare,” said Waddington, who has worked in the industry for more than 20 years.

While Encounter’s main focus is arranging groups of solo-travellers, Waddington said smaller agencies, which rely entirely on selling other providers’ tours, airfares and third-party products, are in a tough position.

As such, Waddington is now considering refusing credit card payments from some customers.

“The alternative is that the customer pays by direct deposit, but where some bookings are time-sensitive, waiting for funds to clear can mean the deal vanishes for the traveller.”

Only accepting debit “may be my only viable option”, Waddington said. “Just as a customer wants to avoid that fee, so does a business. So why is it reasonable that a business should have to absorb the same cost?”

Crucially, Waddington said this will likely frustrate those who pay for airfares for tour packages with a credit card to fulfil a spending requirement to activate a free travel insurance policy offered as part of their card, something she said is particularly popular for international travel.

To activate the policy, banks often require a minimum credit-card spend – often $500 – on a holiday-related expense before departure.

While the extent of reliance on free travel insurance from their credit cards is unclear, an estimate based on survey data from Money.com.au last year was that 39 per cent of Australians rely on such policies and don’t take out extra paid policies.

“Paying credit is the most convenient option for a customer. Not only could this mean they can’t pay on credit, can’t earn points on the dollars they spend on their holiday bookings … but the ability to activate a complimentary travel insurance policy may disappear.”

Waddington added that the meagre commissions that airlines offer agents on airfares extend to online and third-party sales websites, suggesting customers of some of the most popular flight booking providers may face a similar hurdle to accessing complimentary insurance.

Cola Maurirere, the head of sales at the seniors-oriented agency Travel at 60, said she had calculated what it would cost for her business to wear fees for credit payments in the era of the ban.

“It’s just about the annual salary of a travel agent,” she said. “We can’t absorb that, but we also can’t take away paying by card as an option for our customers,” Maurirere said.

Dean Long, chief executive of the Australian Travel Industry Association, has been scathing of the RBA’s surcharge ban, saying “there will be agents who no longer accept credit cards” as a result.

“Agents are relying on slim margins, and they’re not the ultimate holder of these (travel) products,” he said. “Surcharging has allowed them to recoup their costs while maintaining customer perks.”

“Australians seem to love rewards, and we do strange things for reward points, but this will be a change in the way we think about reward points, how we spend them, and how it changes consumer behaviour because you’ll see fewer points and less ability to claim benefits such as (travel) insurance,” Long said.

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