HDFC Regalia to Axis Magnus: Why banks are devaluing popular credit cards

If you have opted for a credit card based on its appealing benefits and rewards, beware that several banks in the last few months have opted for the devaluation of cards.

 Credit card devaluation occurs when the value and benefits offered by a credit card decrease over time. It happens when credit card issuers implement changes to the card's terms, rewards program, or fees, ultimately resulting in reduced value for cardholders.

Both Axis Bank and HDFC Bank have devalued some features on their most sought-after cards as they want customers to spend more to reap benefits. 

Earlier this week,  HDFC Bank introduced an eligibility requirement for accessing 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, thereby linking lounge access to credit card expenditure.  On reaching the quarterly milestone, the customers are eligible for just two complimentary lounge access vouchers. Post which, the access will depend on the credit card spending of the cardholders.

Further, the process for availing these benefits has also been restructured. After one meets the spending criteria specified by the lender, cardholders will have 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.

In September, Axis Bank revised the terms of its most sought-after Magnus Credit Card, Not only did users lose the 25,000 points monthly milestone benefit ( the card's biggest USP), the annual fee increased from Rs 10,000 + GST to Rs 12,500 + GST. This card earlier offered 25,000 EDGE reward points worth Rs 5,000 on monthly spends of Rs 1 lakh. 

Also, from September 1, the transfer ratio to convert reward points to airlines and hotel loyalty programmes for Axis Magnus cardholders has become 5:2, compared to a previous 5:4 ratio, implying that for every 50,000 reward points, you could now get 20,000 air miles, compared to 40,000 miles earlier. 

In the case of the Axis Bank-Flipkart card, one can earn a cashback of 1.5 per cent by using the card to pay for travel-related expenses on Flipkart but the bank stopped cashback on fuel purchases, gift card purchases made on Flipkart and Myntra and EMI transactions.

In August, HDFC Bank decided to overhaul its Diners Club Privilege product. The Bank discontinued the 2X Reward Points on weekend dining, while two golf games per quarter have been removed. With effect from August 1, 2023, the redemption against Air Miles was replaced by reward redemption against dining vouchers, at the same value of 1 RP= Rs 0.5. While this could be a beneficial deal for those looking for dining benefits, no redemption on airmiles can be a drawback for frequent travellers.

In May, SBI Cards discontinued the 5 percent cash back on services like jewellery, utilities, school and educational services, and insurance besides other outlets. 

But why are banks devaluing credit cards?

"In 2023, the devaluation of several credit cards' rewards and benefits may be largely attributed to the economic conditions that followed the global pandemic, particularly inflation. As the cost of goods and services has risen, credit card companies have had to reassess the sustainability of their rewards programmes," said Nitin Purswani - CEO at Medius AI.

For example, where a card might have once offered 2 points per dollar spent on dining, it may now only offer 1.5 points, effectively devaluing the earning rate.

Additionally, redemption options have been affected; for instance, a flight that used to cost 25,000 miles might now cost 30,000 miles.

"Credit card issuers might adjust their rewards structures to align with these economic changes, aiming to balance consumer attraction with profitability. This recalibration often results in less favourable terms for cardholders, manifesting as fewer rewards, increased redemption thresholds, or the curtailment of ancillary benefits like free baggage or airport lounge access, reflecting a broader trend in the industry towards more conservative rewards offerings," said Purswani.

Adhil Shetty, CEO of Bankbazaar, believes the current rewards devaluation is an ongoing process in reaction to challenges such as inflation, pressure on margins, and competition. "Everyone in the credit card ecosystem has the responsibility to grow profitably and sustainably. India is becoming rapidly credit-mature in a period of high inflation. Therefore, credit card providers will have to revisit their rewards programs and tweak them for sustainability while providing the best possible customer experience," he said. 

Digital payments are rapidly growing, evident from the current circulation of 93 million credit cards and an average spend of about Rs 5,200.

As India progresses in credit usage and more individuals become eligible for their initial credit lines, credit card companies will need to reassess their rewards programs to ensure sustainability.

Keep track of your rewards, and benefits and use your reward points regularly

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 a 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 Rohit Chhibbar, Head of Credit Cards Business, Paisabazaar.