Chapter 19.      Interchange Fees and Rewards Programmes are mutually exclusive. 
The Reserve Bank allows Credit Card Issuers to charge as low as 0.20% and as high as 2% (Graph No 6 below) for Credit Card Issuers to perform the same Interchange Fees Services

An Interchange Fee is charged by the Card Issuer to the Merchant for putting the Merchant in funds 'same day' of a Purchase by a Credit Cardholder or a Debit Cardholder.

An Interchange Fee is -

(i)          a transaction fee that the Merchant's bank, known as the Acquirer Bank, pays whenever a Cardholder uses a credit/debit card to make a Purchase; and

(ii)         paid to the Card Issuer to cover -
             a)      funding cost up to 55 days;
             b)      electronic hardware and software handling costs;
             c)      fraud and bad debt costs; and
             d)      the risk involved in approving the payment.

"The tendency for interchange rates to rise to high levels is most apparent in unregulated jurisdictions like the United States where credit card interchange rates in the MasterCard system are as high as 3.25 per cent plus 10 cents, implying that – after scheme fees and acquirer margin – some merchants may pay over 3½ per cent in merchant service fees for high rewards cards."

"The new interchange standards will result in a reduction in payment costs to merchants, which will place downward pressure on the costs of goods and services for all consumers, regardless of the payment method they use. The weighted-average benchmark for credit cards has been maintained at 0.50 per cent, while the benchmark for debit cards has been reduced from 12 cents to 8 cents. The weighted-average benchmarks will be supplemented by ceilings on individual interchange rates which will reduce payment costs for smaller merchants. Commercial cards will continue to be included in the benchmarks, but the Board has decided for the present against making transactions on foreign-issued cards subject to the same regulation as domestic cards. Schemes will be required to comply with the benchmarks on a quarterly frequency, based on weighted-average interchange fees over the most recent four-quarter period. These tighter compliance requirements will ensure that the regulatory benchmarks are an effective cap on average interchange rates. The new interchange standards will largely take effect from 1 July 2017."

Review of Card Payments Regulation - Regulation Impact Statement - May 2016 includes:

"1.2 Why is government action needed?

Regulation is needed to limit interchange fees because competitive forces in the payments card market do not have the usual effect of bringing costs down. Where merchants feel unable to decline particular cards (because consumers expect to be able to pay with that card and may take their business elsewhere if they cannot), card schemes tend to have strong incentives to raise interchange rates. Evidence from a range of countries suggests that competition between well-established payment card schemes can lead to the perverse result of increasing the price of payment services to merchants (and therefore to higher retail prices for consumers). The conclusion of the Reserve Bank in Australia, and by other regulators internationally, is that regulation is needed to contain the upward pressure on interchange fees. Previous attempts at self-regulatory responses to this issue have not proved feasible."

"Option 3: Regulatory – modifying the regulatory regime, retaining the existing weighted-average interchange benchmark for credit cards but enforcing it more effectively with more frequently observed (quarterly) compliance, and supplementing it with maximum caps on interchange rates. Companion cards would be regulated in the same way as cards in the four-party schemes. The weighted-average benchmark for debit cards would be reduced, consistent with changes in average transaction values, and maximum caps would also apply to debit card rates. Prepaid cards would be brought formally into line with debit card interchange regulation. Permitted surcharge levels would be defined more narrowly to ensure more effective enforcement against excessive surcharging. Payments card acquirers would have to provide periodic statements with more detailed costs of acceptance to merchants."

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