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For years, credit cards in India have become increasingly attractive due to lucrative cashback, reward points, airport lounge access, travel benefits, and exclusive discounts. Many customers choose cards based on these perks, while some select users became adept at earning the maximum rewards on every transaction.
Over the past year however, credit cardholders in India have noticed a steady pattern-credit card rewards are diminishing.
Cashback rates have been lowered, reward point programs have tightened, airport lounge access often requires a minimum spend, and the premium card perks are being reworked. Banks aren’t just cutting benefits on one or two cards-this trend is sweeping across the entire credit card industry.
Why are banks lowering their credit card rewards, and what does it mean for us?
Let’s look at the reasons for the industry-wide change.
- The era of easy credit card rewards is ending
- Rising costs force banks to recalibrate their rewards
- More customers are paying their bills on time
- Higher regulatory requirements are driving up costs
- Credit card defaults are becoming a concern
- Banks Now Prefer High-Value Customers
- Why Rewards & Cashback Are Becoming Harder to Accumulate
- The Card "Gaming" Community Shifted the Dynamics
- What the Future of Credit Card Rewards Looks Like
- How Consumers Can Adapt
The era of easy credit card rewards is ending
Until very recently, banks aggressively competed to acquire new credit card users. Reward points, cashback programs, travel privileges, and lifestyle perks have been a strong marketing tool.
Most cards were offering:
- Cashback in high percentages
- Easier reward point accumulation
- Free airport lounge visits
- Hotel and travel vouchers
- Restaurant and movie discounts
- Low spending thresholds for premium card benefits
As competition grew, banks kept increasing the benefits, and this was feasible till a few years ago. The economics have however changed drastically and banks are now moving from customer acquisition to profitability.
Rising costs force banks to recalibrate their rewards
One primary reason behind the cut in credit card benefits are the escalating costs associated with the rewards offered.
For instance, the popular perk of free airport lounge access. Usage increased by many folds as multiple cards started offering complimentary access, thereby shifting it from a luxury benefit to a commonplace service. As lounges started raising their charges to partners, banks could not sustain unlimited, unrestricted access and started putting a cap or a limit on the number of free access points and introduced conditions based on spending.
Similar trends are seen in reward points and cashback programs, as a growing segment of credit cardholders are now strategizing their spends to get the maximum return out of it. Banks are now paying more in rewards while earning less on certain customer segments.
More customers are paying their bills on time
This might sound strange, but responsible customers paying their bills in full are also contributing to reduced card rewards. Banks get significant revenue from interest on credit cards. With interest rates often crossing 25% annually, credit card interest income is one of the most profitable streams of income for banks. However, repayment behavior among credit card users has improved over the last few years and more people are:
- Paying their entire bills
- Not incurring any interest charges
- Primarily using credit cards for rewards and not for borrowing
- Using credit cards as a payment instrument
While this is a win for consumers, it means that one of the largest sources of revenue for banks has dried up, and in order to maintain profitability, other reward programs and promotional benefits need to be scaled back.
Higher regulatory requirements are driving up costs
Increased regulatory scrutiny over the banking sector is also impacting credit card rewards. In the last few years, banks were mandated by regulators to maintain higher capital requirements against credit card portfolios, on the back of growing concerns over rising unsecured lending and personal loan volumes. With the increased capital burden, banks are reducing rewards programs in a bid to offset the impact of higher regulatory compliance costs.
Credit card defaults are becoming a concern
Despite a general improvement in payment behavior, higher defaults still pose a challenge for many banks. The pandemic-driven surge in credit card users resulted in the inclusion of several new users who may not be seasoned credit users and who may lack the stable income to comfortably manage the card expenses, leading to higher instances of delinquencies. This is making banks more risk-averse in their reward programs.
Banks Now Prefer High-Value Customers
Looking ahead, the evolution of the credit card market seems to be centered around customer profit rather than customer volume. Banks will no longer reward all customers equally, rather focus their efforts and dollars on customers who are:
- Making large annual purchases
- Banking at their institution
- Invest with them
- Hold multiple products with the bank
- Are long term profitable customers
In turn, higher-end credit cards will likely have higher entry barriers. In many cases higher spending requirements, increased fees, and stricter approval processes will become standard practice for premium cards. This allows for a focus of rewards dollars on the customer providing the highest bank value.
Why Rewards & Cashback Are Becoming Harder to Accumulate
Secondly, another emerging trend is a move to restricted rewards. Instead of giving the same reward for every rupee spent banks are starting to provide:
- Monthly cashback limits
- Spending caps
- Category restrictions
- Redemption floors
- Reward exclusions
Many cards have started giving rewards only at specific categories like dining, travel, online shopping etc. But utility payments, loading wallets, insurance, education and government transactions are being removed from the rewards. Banks do this in order to maintain the cost but encourage specific spending
The Card “Gaming” Community Shifted the Dynamics
A small but influential group of users has become exceptionally skilled at maximizing credit card rewards.
These consumers carefully track:
- Reward point conversions
- Cashback limits
- Spending categories
- Promotional offers
- Travel redemption opportunities
While they represent a minority of overall cardholders, their optimization strategies significantly increase reward payouts for banks.
Online communities and social media platforms have made these strategies widely accessible, encouraging more users to maximize benefits.
As participation increased, many reward programs became less sustainable, forcing issuers to adjust their offerings.
Industry discussions increasingly describe the shift as a move from “unconditional rewards” to “spend-linked rewards.”
What the Future of Credit Card Rewards Looks Like
The Indian credit card market is still unsaturated, with the penetration rate being significantly lower than that in the developed countries. Thus, ample growth potential exists in the credit card industry.
But there are two parts into which the reward market will probably divide into:
1. Premium Reward Ecosystem
These cards will offer:
- High annual fees
- Strong travel benefits
- Better reward rates
- Luxury experiences
- Exclusive memberships
But access will be limited to affluent customers with high spending patterns.
2. Mainstream Credit Cards
These cards will focus on:
- Simpler cashback structures
- Basic rewards
- Lower fees
- Practical everyday benefits
Rewards may be less generous, but they will remain relevant for the majority of users.
How Consumers Can Adapt
While award programs become less forgiving, card holders can maximize value without having to jump through every hoop.
Practical tips to follow include:
- Evaluate your annual fee periodically
- Monitor the evolution of your award programs
- Choose cards which suit your spending habits
- Keep only cards that are worthwhile
- Do not spend more than necessary just to achieve reward
- Compare awards offered before renewing premium card
The era of earning considerable rewards with no or little spending might be coming to an end but clever consumers will be able to get worthwhile value out of their card products.
Final Thoughts
This trend of decreasing credit card rewards across India isn’t just a passing trend. It represents underlying shifts in the banking industry’s economics, regulatory mandates, customer behavior, and profit expectations.
The shift seems to be away from generic rewards towards category, and more importantly, spend-based benefit structures. Customers at the premium end will probably get to keep their generous rewards and the mainstream customer base can expect a simplified, well controlled rewards structure.
So what can consumers take away? The lesson here is, ‘don’t apply for cards for the marketing’ and rather on actual usage patterns. As banks look towards maintaining a steady stream of profits from cards, the smartest route to earning is not ‘try and make more points’ but ‘select a card for you and use it’.
