Credit card providers have traditionally offered perks such as airport lounge access to entice customers. However, these benefits have gradually been curtailed, leaving cardholders wondering why.
For instance, after HDFC Bank, Axis Bank and SBI Card, ICICI Bank recently modified its airport lounge access benefits and reward points rules on 21 credit cards. According to the new rules ICICI Bank credit cardholders will get one complimentary airport lounge access by spending Rs 35,000 in the preceding calendar quarter. Currently, credit cardholders of ICICI Bank Coral Credit Card or ICICI Bank Expressions Credit Card need to spend a minimum spend of Rs 5,000 or above in a quarter to be eligible for complimentary lounge access. The revised benefits will be applicable from April 1.
“Credit card providers had already started cutting down on lounge access around 2-3 months back. To quote some numbers, the cost of providing lounge access used to be 0.10 per cent of the total product cost till some time ago. That has now increased to 0.25 per cent,” says Gurjot Singh, Co-founder of fintech retail debt collections firm Collekto.
The rationale behind the reduction is a complex interplay of economics and customer behaviour. Credit card providers have experienced financial strain due to increasing costs, largely driven by inflation. With the prices of goods and services on the rise, offering these amenities has now become costlier. “In this day and age, credit card firms and their business partners are faced with several challenges, all of which boil down to running the business sustainably. These challenges range from meeting customer demands in the face of inflation to tough competition, and the need to improve margins,” says Adhil Shetty, CEO of BankBazaar.com. “As digital payments grow rapidly, and more and more Indians become eligible for a credit line, credit card firms will need to reassess their rewards programmes, among other things, to ensure sustainable growth,” he adds.
Moreover, there is a surge in travelling seen post Covid-19 period where people using the lounge access has multiplied manifold over the years.
Another reason for the reduction in benefits is the decreasing revolver rate for the industry. With credit card users classified into three categories—transactors, who pay off their balances promptly; revolvers who carry overdue balance to the next month and accrue interest on the outstanding amount, and EMI users—experts say that revolvers are typically the most profitable cardholders for issuers. They add that there is also a growing practice among individuals, of opting for personal loans to settle their credit card balances. But paying their higher-interest-incurring credit card dues with low interest rate personal loans has contributed to the reduction of margins for credit card providers as they miss out on the interest they would have otherwise earned. An example is SBI Card’s revolver rate that has dropped to 24 per cent in Q2FY24, from 34 per cent in Q2FY21.
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Moreover, delinquency levels are on rise.Consider this: Balance-level serious delinquencies, measured as 90 dpd (days past due), has improved across product categories, except for credit cards and personal loans, according to the TransUnion CIBIL Credit Market Indicator (CMI) report for the quarter ending June 2023. It is at 1.63 per cent for credit cards, and 0.84 per cent for personal loans for the quarter ended June 2023, up 0.17 and 0.4 per cent, respectively, compared to the same quarter in the previous year.
However, could there be additional devaluations in the near future? “Certainly,” asserts Singh from Colleckto. He explains that due to the rising Cost of Funds, card providers will likely need to enhance the premium nature of rewards. Consequently, the eligibility criteria for perks might see an increase. For instance, the spending thresholds required for certain benefits such as lounge visits, reward points conversion rates, and more, could be raised on a monthly or quarterly basis. Singh emphasizes that card issuers, in order to preserve their margins amid escalating CoF, may have to scale back on various features, including reward points and lounge access.
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