HDFC Bank Regalia, Axis Bank Magnus: Why are companies devaluing credit cards?

Credit cards, known for their popularity and convenience in managing personal finances by offering up to 45 days of interest-free credit, are undergoing rapid changes. Traditionally, these cards have offered lucrative benefits such as cashback, lounge access, travel miles. However, banks have recently been reducing these perks, thus devaluing their credit card offerings.

For instance, HDFC Bank recently introduced an eligibility requirement for accessing the lounge benefits of its Regalia Cards. Starting from December 1, 2023, cardholders must spend a minimum of Rs 1 lakh in a calendar quarter to avail of these benefits. This essentially links lounge access to credit card expenditure, marking a significant departure from the previous policy. Similarly, Axis Bank revised the terms of its Magnus Credit Card, effective from September 1, 2023. In addition to losing its 25,000 points monthly milestone benefit, the annual fee increased from Rs 10,000 + GST to Rs 12,500 + GST. This fee adjustment reflects the current trend of banks devaluing their credit card offerings.

So, why are companies devaluing credit cards? "Credit card companies and their business affiliates must respond to the challenges of their times. Today, these challenges may involve improving margins, adjusting to competition, and countering inflation while meeting their customers' expectations. Everyone in this value chain shares the responsibility for sustainable and profitable growth. Digital payments are rapidly expanding in India, with 93 million credit cards in circulation today and an average credit card spend of around Rs 5,200. As India becomes more credit-mature and millions of Indians become eligible for their first line of credit, credit card companies will need to reevaluate their rewards programs to ensure sustainability," said Adhil Shetty, CEO of Bankbazaar.com.

Experts say another reason which is contributing to these changes is the decline in the revolver rate for companies. There has been a trend of more people taking personal loans to pay off their outstanding credit card balances, reducing profitability and leading to the devaluation of cards. If this trend persists, we may see further devaluation of credit cards in the industry in the near term. 

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Consider SBI Credit Card, which holds around 20% market share in credit cards and has seen the revolver rate drop from 34% in the Q2FY21 period to 24% in Q2FY24. The rate was 38% before the COVID-19 pandemic. 

Credit card customers can be classified into three primary categories: transactors, revolvers, and those who convert revolving credit into EMIs to reduce interest costs. Transactors make purchases with their cards and pay off their entire balances before the due date. Revolvers, on the other hand, do not pay off their dues immediately and accrue interest on their outstanding amounts. Among these categories, revolvers are generally more profitable for credit card issuers than those who opt for EMI conversion.

"We have rationalised lounge access for the first time in the last couple of years. For some airports, it is very costly, and it's not feasible to offer it to all customers. During the COVID-19 period, it wasn't used. It's only now that we are witnessing a surge in travel. While there has been a decline in the revolver rate, it is not the primary reason for the change in benefits and may not be directly related to it," said Sanjeev Moghe, President & Head of Cards & Payments, Axis Bank.

This isn't the first time that banks have reviewed the features of their credit cards. Experts say it's an ongoing process to align benefits and features with customer demand. "We periodically review credit card features. It's not the first time that features have been changed. On an ongoing basis, we evaluate our cards, and if some features aren't being used, we review them," said Moghe.

Usually, most credit cards go through several changes to their terms and conditions, rewards program, structure, introductory offers, annual fees, eligibility criteria, and more throughout their life cycle. "While some changes may be minor, others can significantly devalue a credit card. It's not uncommon for banks and credit card issuers to make substantial changes, leading to major devaluations of credit cards. As a cardholder, there's not much you can do about devaluation except to stay informed and prepared, said Rohit Chhibbar, Head of Credit Cards at Paisabazaar.

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What to do if your card gets devalued? 

It is always good to speak to your card provider to understand how the devaluation impacts you. You may also understand from the provider what your alternatives are. Can you continue getting your preferred benefits by restructuring your spends? Can you shift your spends to another card you have? Or can you upgrade or downgrade your existing card if it no longer satisfies your needs? "If you want a new card, the market is buzzing with options. Find out which card you’re eligible for and get it. Typically, we don’t advice cancelling an existing card due to the negative impact it could have on your credit score. But if you’ve decided to cancel, cash out your rewards, clear your outstanding dues, and get a no-dues confirmation from your bank," said Shetty.

The most basic thing to do is to be aware of the kind of rewards and benefits your card offers, to derive maximum value out of your card. Do use your reward points regularly and don’t just keep accumulating them. You also need to stay informed of any kind of changes on your credit card that can adversely impact these benefits, like changes to the rewards structure, milestone benefits, annual fees etc. "As a user, if your card undergoes any major devaluation, the first thing to do is to evaluate how this would affect your benefits, considering your spending patterns. If it’s a major devaluation with significant impact, the only real choice you have is to look at other alternative credit cards, either from the ones you already have or a new one that you may need to apply for. While doing this, ensure the alternative option also suits your spending habits and is significantly better than the devalued card in terms of the overall value it provides," said Chhibbar.