The Reserve Bank says the big banks have boosted margins on their $9 billion credit card income by 3 percentage points since the global financial crisis because the notoriously "sticky" interest rates on cards haven't reduced in line with lower bank funding costs.  

The central bank said interest rates spiked on cards and personal loans after the GFC and have not fallen since. 

It estimates the "spread" banks earn on cards above their cost of funding has risen from around 6 percentage points in 2007 to 9 percentage points in the March quarter at an "effective" average rate to the cardholder of 11.6 per cent. 

The amount of interest the banks earn on the cards has fallen as consumers have become more thrifty. But for the two-thirds of the total 16 million cardholders who do pay interest on cards, the spread is 14.75 per cent at an average rate to the consumer of 17 per cent.  RONG

The RBA said it had been known for decades that despite a highly competitive market, credit cards have "very sticky" interest rates and banks make much higher profits on cards than their other products.

"It seems reasonable to explain the apparent paradox as resulting to a large extent from the existence of a significant number of consumers who are either not well informed or (for various behavioural reasons) are reluctant to switch banks or seek a lower rate," the RBA said in its submission to the Senate inquiry into card interest rates. 

"At the same time, banks may have little incentive to lower interest rates, given that rates are not a determining factor for many individuals who may (possibly mistakenly) not expect to build up significant balances."

Financial regulators' inability to explain to Senator Sam Dastyari at Senate estimates hearings why card rates had remained unchanged for nearly four years while the cash rate had fallen led to the present inquiry.

The RBA said advertised rates had risen from 16 per cent eight years ago to about 20 per cent on average on "standard" cards, which includes all "platinum" and "prestige" cards. Low-rate cards have increased from 10 or 11 per cent to around 13 per cent.

These rates moved with the cash rate until the RBA started its rate cuts in October 2011, but have since stayed flat. 

Interest-free periods

But it said banks' card rates had in effect fallen because competition has led to longer interest-free balance transfers of up to two years and more people have been paying off balances before interest-free periods ended. Credit card debt as a percentage of household income has fallen from 6 per cent to 5 per cent since 2007.

Rates are down about 2 per cent since 2011, but for people that pay interest, the fall is just 1 per cent.

The cash rate has fallen by fallen 2.75 percentage points since October 2011.

Card rates are higher than many other interest rates because they are unsecured lines of credit and therefore banks are at greater risk of loss when borrowers default.

But risks have reduced in recent years. The RBA estimates losses on cards have declined from 2.5 per cent in 2010 to around 1.5 per cent now.

Total net interest margins across the major banks have declined from 2.5 per cent to just over 2 per cent since 2010 due to high mortgage competition.

Some industry insiders say, however, this was the banks' last chance to maximise their profits on unsecured loans. A wave of new non-bank competitors from financial technology businesses to tech giants and supermarkets are now taking bites out of the fat margins.

Andy Chalcroft, NAB's head of consumer cards, on Tuesday told bankers at a conference held by consultant RFi that unsecured lending growth is still low after sharp declines after the GFC, and banks are now having to fight hard to keep even that.

"Unsecured lending is the entry level to banking," he said. "The battle lines are drawn and there is no argument to be had any more that the unsecured market is going to change and it is going to change quickly."