Lower rewards are likely for popular credit card points programs

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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.