American Express Fee Rise and Reward Cut Could Benefit Mastercard

Includes: AMX, MA
by: David Jackson

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

American Express Is Overhauling Its Rewards Plans

  • Summary: American Express is today announcing sweeping changes to its credit card reward programs, that effectively redue rewards and raise fees. Double rewards for purchases in groceries, supermarkets and gas stations will end, and the annual fees on AmEx cards will rise as much as $35 to $125 for some card holders. American Express says that the aim of the double rewards was to encourage cardholders to use credit cards for everyday purchases, and that has now been achieved. American Express accounted for 22.3% of the $1.58 trillion in US credit card spending in 2005 according to Nilson.
  • Comment on related stocks/ETFs: For many customers, these changes will make AmEx cards less attractive than Visa or Mastercard credit cards. There are two ways this could play out in terms of the stocks: if few customers defect, this will raise American Express' profits and boost its stock (NYSE:AXP). If it results in widescale defections, competitor Mastercard (NYSE:MA) will benefit. For consumer advice on optimising credit card use, see The Radical Guide to Credit Cards.