- Banks are reducing credit card rewards due to declining profitability in the cards business
- Reward points earned per rupee and their value have been cut by several banks recently
- Lounge access benefits have been limited or removed, especially for basic cardholders
Banks are steadily scaling back credit card reward programmes as weakening profitability in the cards business forces issuers to rein in costs, according to people familiar with the matter. Lenders have reduced the number of reward points earned per rupee spent, while also cutting the value of reward points and shortening their validity. Several banks have tightened redemption benefits and raised eligibility thresholds for premium perks such as airport lounge access.
Banking officials attribute the move to multiple factors. A lower proportion of customers are revolving their outstanding balances, reducing interest income from credit cards. Customers are also repaying their credit card debt using personal loans at cheaper interest rate. Officials believe the overall profitability of the cards business has come under pressure.
ALSO READ: SBI Card Leads Credit Card Additions In May; Spending Rises Across Top Issuers
They also say generous reward programmes launched during the industry's rapid expansion were increasingly being exploited by users who maximised benefits without generating commensurate revenues for issuers. According to bankers, elevated reward rates were initially offered to acquire customers and build scale. However, with funding costs remaining high and banks facing challenges in mobilising low-cost deposits, expensive rewards-led card products are becoming difficult to sustain.
"Under this rationalization drive, lounge access has been one of the most impacted benefits. Banks have either reduced the number of complimentary visits, introduced spending-based eligibility, or removed the benefit altogether on some entry-level cards. The idea is to reserve these benefits for customers who actively use their cards. While premium cardholders are generally able to meet the spending thresholds, users of basic or low-fee cards may have to look beyond their credit card for lounge access. Solutions like PB Pass, which offer complimentary lounge visits independent of the card's built-in benefits, can help bridge this gap,'' said Santosh Agarwal, CEO, Paisabazaar.
Credit Card Reward Changes
The credit card market remains dominated by a handful of large players. HDFC Bank has the largest cards-in-force base with a market share of around 22-23%. SBI Cards, ICICI Bank, Axis Bank and Kotak Mahindra Bank are also among the largest issuers, while SBI Cards emerged as the top credit card issuer in May in terms of new card additions. At RBL Bank, credit cards account for around 18% of the overall loan book. Several major issuers have already announced benefit reductions. HDFC Bank cut reward points on its Infinia credit card and tightened the spending threshold for airport lounge access.
ALSO READ: Your Bank Wants To Raise Your Credit Card Limit. Should You Agree Or Is It A Trap?
Axis Bank discontinued reward point transfers to Accor Live Limitless. Federal Bank's Scapia credit card underwent a significant devaluation of benefits, while SBI Cards has also reduced rewards across select credit card products. The trend suggests banks are prioritising sustainable profitability over aggressive customer acquisition, with reward programmes increasingly being recalibrated to reflect changing economics in the credit card business.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.