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Lower rewards are likely for popular credit card points programs

REWARD point programs offered by popular credit cards are expected to halve in value because of the Reserve Bank of Australia’s decision to toughen the rules on surcharges.

Card experts say the commonly-used companion card programs, where people receive an American Express card along with a Visa or MasterCard, will be among the hardest hit and could lead to banks withdrawing their cards or consumers avoiding them.

contenttype="text" In a move welcomed by consumer groups, the RBA on Thursday announced new rules to stop airlines, ticketing companies, taxi services and other businesses from charging credit card surcharges higher than the businesses were being charged themselves.

It also announced a cap on card interchange rates of 0.8 per cent, which will bring premium cards such as American Express, black, platinum and diamond cards into line with other banks. The new rules, to be enforced by the Australian Competition and Consumer Commission, start on September 1.

Many reward card programs use higher annual fees and higher interchange rates to help fund reward points, and card payments consultant Mike Epstein said the rule change reduced their interchange fee revenue rate from about 2 per cent to just 0.8 per cent.

The revenue stream theyre getting when those cards are used will be greatly reduced, he said.

Mr Epstein said consumers could expect to see their ability to earn points to probably at least halve.

No longer will they have the ability to offer an accelerated earning capacity the advantage for the consumer will disappear, he said.

I think over the medium term the banks will stop issuing them. Theres no reason for them. They will just become a cost.

Canstar senior research analyst James Slack said the cap of 0.8 per cent on interchange fees meant consumers could see a sharp reduction in the value of rewards programs on offer or perhaps a much higher annual fee on some cards.

Its possible that the big four banks may take decisions to limit or end the issuance of companion cards, he said.

Mr Slack said the interchange fee changes did not apply to cards issued directly by American Express only to American Express cards issued via a bank.

Whatever consumers decide to do, they need to actively monitor their rewards programs over the next few months, he said.

Mr Slack said about 40 per cent of people who searched Canstar.com.au for credit cards were looking for reward programs, so even if the programs weakened I suspect well still want whats available.

However, if annual card fees started rising consumers might be turned off, he said.

Creditcardfinder.com.au spokeswoman Bessie Hassan said consumers were likely to hold onto dual cards for a while because they were often big spenders who wanted to maximise their points.

Now that merchants wont be able to excessively charge customers for using credit cards, cardholders may be able to earn more points by using Amex more often, she said.

Trump bets blast dow to new high

US BANKING sector shares surged to levels not seen since the midst of the 2008 financial crisis, pushing the Dow to an all-time high, while technology shares sank as Wall Street rearranged its bets to benefit from Donald Trump’s presidency.

The S&P 500 financial sector surged 3.70 per cent to its highest since the 2008 financial crisis, bringing its gain since Trumps surprise victory in Tuesdays election to 7.9 per cent, its biggest two-day gain since 2011. Shares of Wells Fargo & Co jumped 7.58 per cent to their highest since January, and have now erased all of the losses incurred in the wake of a scandal over fake accounts opened by its employees. Bank of America surged 4.40 per cent and JPMorgan Chase rallied 4.64 per cent to a record high.

Trump has sided with leading conservatives in calling for the repeal of the 2010 Dodd-Frank Financial Reform Act largely opposed by banks.

The Trump campaign did say it would repeal Dodd-Frank. Rates are higher and the yield curve is steeper. Those are all good things for the banks, said Warren West, principal at Greentree Brokerage Services in Philadelphia. Apple dropped 2.79 per cent while Amazon.com fell 3.82 per cent and the S&P 500 technology index fell 1.59 per cent.

The Dow Jones industrial average jumped 1.17 per cent to end at 18,807.88, smashing through its previous record high set in August by almost 1 per cent. The S&P 500 rose 0.2 per cent to 2,167.48 while the Nasdaq Composite dropped 0.81 per cent to 5,208.80, hurt by losses in tech shares.

With Thursdays gain, the Dow is up 8 per cent in 2016 and the S&P 500 is up 6 per cent.

High-dividend sectors utilities, telecom services and consumer staples sold off by more than 2 per cent as bond yields rose due to expectations of higher interest rates.

The market got a lift after St. Louis Federal Reserve President James Bullard said the Republican sweep of the White House and Congress could break the current gridlock over national policy in a potential boon to the US economy. Industrials trailed the financials with a 2.05 per cent advance. Macys rose 5.6 per cent after the department store operator raised its full- year sales forecast and announced a partnership to monetise some of its real estate assets.

After the bell, Nordstrom reported quarterly results that sent its shares 5 per cent higher while Walt Disneys quarterly report pushed its stock down 2.6 per cent.

Declining issues outnumbered advancing ones on the NYSE by a 1.15-to-1 ratio; on Nasdaq, a 1.58-to-1 ratio favoured advancers.

The S&P 500 posted 84 new 52-week highs and seven new lows; the Nasdaq Composite recorded 336 new highs and 48 new lows.

About 12.3 billion shares changed hands on US exchanges, far above the 7.3 billion daily average over the last 20 sessions.