Loyalty Points - What the interchange reforms tell us about loyalty businesses, and about any company whose margin depends on someone else’s regulated revenue.
Ask most Australians who pays for their frequent flyer points and they’ll say Qantas, or Virgin. It’s a reasonable assumption and it is almost entirely wrong.
The points on your card were bought in bulk, at wholesale, months before you earned them by your bank. And the money your bank used to buy them came largely from interchange: the fee paid between banks every time a card is tapped. Rewards cards carry the highest interchange rates in the system. That fee is the rail the entire Australian points economy runs on.
From 1 October 2026, the Reserve Bank is cutting the cap on consumer credit card interchange from 0.80% to 0.30%, a reduction of more than 60% while banning card surcharging across the eftpos, Mastercard and Visa networks. The RBA estimates around $910 million a year comes out of the system.
That is a payments reform on paper. In practice, it is a repricing of one of the most valuable asset classes in corporate Australia, and if the UK example applies, an increase of credit card interest rates of up to 4%.
First, why loyalty businesses became so valuable
In September 2019, Virgin Australia paid $700 million to buy back the 35% stake in Velocity Frequent Flyer it had sold to Affinity Equity Partners for $336 million five years earlier. The implied value of Velocity was about $2 billion. Virgin Australia Holdings’ entire market capitalisation at the time was roughly $1.35 billion. The loyalty programme was worth more than the airline that owned it.
In June 2020, United Airlines pledged MileagePlus as collateral for a US$5 billion loan and, in doing so, had to open the books. The programme was generating around US$5.3 billion of annual cash and US$1.8 billion of EBITDA. United valued it at roughly 12 times EBITDA about US$22 billion, comfortably more than the airline’s own market capitalisation at the time. Critically, about 71% of the cash came from third parties: card issuers, hotels, retailers.
And in Australia, Qantas Loyalty reported around $563 million in earnings on $2.5 billion of revenue in FY25, with roughly 200 billion points issued and 171 billion redeemed. Management is targeting $800 million to $1 billion in earnings. It is the most consistently profitable division in the group.
The reason these businesses command double-digit multiples is not the miles. It is the customer mix. A loyalty programme’s revenue is contracted, recurring, capital-light, paid in advance and paid by banks and retailers rather than by the travelling public. The cash arrives when the points are sold; the obligation crystallises when they are redeemed, often years later. Unredeemed points expire. It is a subscription business wearing a travel uniform.
Which is exactly why the identity of the paying customer matters so much.
Follow the money, interchange to points
The chain is short and most boards have never had to look at it.
A cardholder taps. The merchant pays a merchant service fee to its acquirer. Embedded in that fee is interchange, paid to the card issuer. Premium and rewards cards attract the highest interchange, because the issuer has the most to fund. The issuer uses that margin to buy points from Qantas, from Velocity, from its own scheme and credits them to the cardholder.
Two consequences follow.
- One: the airline is a wholesaler, and the bank is the customer. Qantas has estimated that around 35% of all credit card spending in Australia is linked to Qantas Points. That is extraordinary market penetration, and it is also extraordinary concentration in a single, regulated, counterparty class.
- Two: the price of a point is set upstream of the programme. No airline sets interchange. No retailer coalition sets interchange. The Payments System Board does. Loyalty programmes are price-takers on their own primary funding source.
What the October reforms actually do
The RBA’s March 2026 Conclusions Paper is unambiguous, and so is the precedent. When interchange caps were last reduced in Australia in 2017, most major issuers cut points earn rates within months. In the UK and Europe, where a 0.30% cap has applied since 2015, the premium rewards market never recovered to anything resembling Australia’s.
Issuers have already begun moving ahead of the deadline with reduced sign-up bonuses on flagship co-brand cards, trimmed earn rates, higher annual fees. We should expect all three to accelerate. In its own submission to the RBA, the Qantas Group pointed to Bank of England data showing UK credit card interest rates rose roughly four percentage points above the increase in base rates following the 2015 European reforms. The funding gap gets closed somewhere and there will be no benefit to consumers.
Two carve-outs are commercially significant. Commercial and business cards retain the 0.80% cap, which makes SME and corporate card portfolios the most defensible points franchise in the country. And American Express, running a closed loop, is not subject to the caps at all, though it cut its Membership Rewards transfer ratios to both major airline programmes to 2:1 in December 2025.
For the programmes themselves, the analyst commentary has been blunt. Bank of America put between $144 million and $270 million of Qantas earnings “at risk” from the reforms, describing the RBA’s decision as the worst-case outcome for the airline.
Points are being squeezed from both ends
Cardholders are absorbing this twice over, which is the part most commentary misses.
- On the earn side: fewer points per dollar, smaller sign-up bonuses, higher annual fees.
- On the redeem side: the currency itself is being repriced. Qantas increased Classic Reward pricing by 5–20% in August 2025, the first material change to its award chart in years. Amex halved its transfer ratios in December 2025.
Programmes facing a tighter wholesale market have every incentive to manage the liability side aggressively. The net effect is that a point earned in 2027 will buy meaningfully less than a point earned in 2024, having required more spending to obtain.
Watch what the programmes are currently doing to de-risk a concentrated revenue line.
Qantas announced its largest structural overhaul in February 2026. Status credits earnable from ground spending cards, groceries, fuel, utilities, insurance plus status credit rollover, and the retirement of Points Club and Green Tier. That is a deliberate shift of the value proposition away from bank-funded points and toward a broader base of retail and services partners who are not subject to interchange caps at all.
The same logic explains why coalition programmes matter. Flybuys, a 50/50 joint venture between Coles and Wesfarmers, and Woolworths’ Everyday Rewards, monetise a different thing entirely, the transaction data and supplier-funded promotion. Wesfarmers has described Flybuys as a key strategic asset underpinning its data and digital capability. That revenue does not depend on the Payments System Board.
The strategic question for every loyalty business in the country is now, what proportion of your earnings is funded by a regulated fee pool, and how quickly can you move it?
The wider lesson isn’t about points
Whose regulated margin funds yours?
How concentrated is your revenue by counterparty type, not customer name?
What is sitting in deferred revenue, and what happens if you can’t deliver?
Where would a buyer put the multiple?
The Velocity story is instructive. In 2019 the market valued the points business above the airline. By the 2020 administration, the independent expert valued it at $640–704 million, roughly a third of the prior figure. Nothing about the members changed.
That is the point worth taking from the interchange reforms. Value in a modern business rarely sits neatly where the business thinks it does, and it is rarely fully within the business’s control. Understanding which of your earnings you own outright, which you rent from a counterparty, and which sit at the discretion of a regulator is not an exercise for the year you decide to sell. It’s the exercise that determines whether that year is your choice.
Olvera Advisors works with boards, founders and lenders on restructuring, turnaround and value preservation. We help you identify where value actually sits, stress-test the earnings you don’t fully control, and act before the options narrow. If you’re reading this and thinking about a number in your own P&L, that’s the conversation to have now, not after the reset when it becomes a crisis.
