Credit Card Devaluations: What Cardholders Need to Know

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Many credit card users choose their cards based on appealing benefits and rewards. However, in recent months, several major banks have implemented devaluations of their credit cards, causing concern for cardholders. Credit card devaluation is the process in which the value and benefits provided by a credit card diminish over time. This typically occurs when credit card issuers make changes to the card’s terms, rewards program, or fees, ultimately resulting in reduced value for cardholders.

Two prominent banks, Axis Bank and HDFC Bank, have devalued features on some of their most popular credit cards. These changes are driven by a desire to encourage customers to spend more to enjoy the card’s benefits fully.

HDFC Bank’s Lounge Benefits Devaluation

HDFC Bank recently introduced new eligibility requirements for accessing lounge benefits on 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, linking lounge access to credit card expenditure. Upon reaching the quarterly spending milestone, customers are eligible for only two complimentary lounge access vouchers. Subsequent access will depend on the cardholders’ credit card spending.

In addition to these changes, the process for availing lounge benefits has been restructured. Cardholders who meet the spending criteria will need to visit the Regalia SmartBuy page and the lounge benefits page on the bank’s website to generate a lounge access voucher to claim their benefits.

Axis Bank’s Magnus Credit Card Changes

In September, Axis Bank revised the terms of its popular Magnus Credit Card. Cardholders not only lost the significant benefit of earning 25,000 points monthly (a significant selling point of the card), but the annual fee also increased from Rs 10,000 + GST to Rs 12,500 + GST. The card previously offered 25,000 EDGE reward points worth Rs 5,000 for monthly spending of Rs 1 lakh.

Starting from September 1, the transfer ratio for converting reward points to airlines and hotel loyalty programs for Axis Magnus cardholders shifted from 5:4 to 5:2. This means that for every 50,000 reward points, cardholders could now receive 20,000 air miles, down from 40,000 miles.

The Axis Bank-Flipkart card also saw changes, with cashback for fuel purchases, gift card transactions on Flipkart and Myntra, and EMI transactions being discontinued.

HDFC Bank’s Diners Club Privilege Overhaul

In August, HDFC Bank revamped its Diners Club Privilege product. The bank discontinued the 2X Reward Points on weekend dining and removed two quarterly golf games. Moreover, as of August 1, 2023, redemption against Air Miles was replaced with reward redemption against dining vouchers at a value of 1 RP = Rs 0.5. While this change may benefit those seeking dining rewards, it’s a drawback for frequent travellers who can no longer redeem for air miles.

SBI Cards and Other Devaluations

In May, SBI Cards discontinued the 5% cash back on services like jewellery, utilities, school and educational services, and insurance, among other outlets. Devaluations like these are becoming increasingly common. But why are banks implementing these changes?

Nitin Purswani, CEO at Medius AI, suggests that the devaluation of credit card rewards in 2023 may be largely attributed to economic conditions following the global pandemic, particularly inflation. As the cost of goods and services rises, credit card companies have had to reevaluate the sustainability of their rewards programs. For example, a card that once offered 2 points per dollar spent on dining may now offer only 1.5 points, effectively reducing the earning rate.

Redemption options have also been affected. For instance, a flight that previously cost 25,000 miles might now require 30,000 miles. Credit card issuers may adjust their reward structures to align with these economic changes, aiming to balance consumer attraction with profitability.

Adapting to Changing Credit Card Landscape

Adhil Shetty, CEO of Bankbazaar, believes the current trend of rewards devaluation is an ongoing process, driven by factors like inflation, margin pressure, and competition. As India’s credit usage grows and more individuals become eligible for credit, credit card companies must reassess their rewards programs to ensure sustainability.

To navigate these changes effectively, cardholders are advised to stay informed about their card’s benefits and keep track of their reward points. Additionally, they should use reward points regularly rather than hoarding them. If a card undergoes significant devaluation, cardholders may consider exploring alternative credit cards that better align with their spending habits and offer more value.

The changing landscape of credit card rewards emphasizes the need for consumers to remain vigilant and proactive in managing their credit card accounts.