4 key changes banks made that reduced credit card rewards

Till about a year back, most credit card transactions earned reward points with few exclusions. They also counted towards eligibility for a waiver of annual fees and reaching milestones. But then it seems some bad actors took undue advantage of this and started misusing it. To curb this, banks swung into action mode and have started excluding specific category transactions from earning reward points and other benefits. As a result, the exclusions list has started growing.

Infact, on specific category transactions, banks have started levying a surcharge/convenience fee, etc., to dissuade cardholders from using their credit cards for these transactions. Let us look at some of the recent changes that banks have made that have reduced credit card rewards.

1) Spend-based access to airport lounges

If you are a frequent flyer, you must have experienced or seen the long queues outside airport lounges during Diwali, New Year, etc. Even if you are not a frequent flyer, you must have read about the overcrowding in airport lounges in the news/social media. It was all thanks to the specified number of complimentary airport lounge visits in a month/quarter/year provided by banks on some credit cards.

While the lounge visit is complimentary for the cardholder, it comes at a cost to the bank. Some people were keeping specific cards only for complimentary lounge access without making any spends or minimal spends on the card. It was a loss-making proposition for the banks. The banks have realised this and have taken corrective action.

In the last few months, many banks have reduced the number of complimentary lounge visits on some cards. Most banks have introduced spend-based access to airport lounges. The cardholder must make a specified minimum spend on the card in the previous month/quarter to unlock the complimentary lounge access in the following month/quarter.

For example, HDFC Bank Regalia Credit Card customers must spend Rs. 1 lakh or more in a calendar quarter to unlock up to two complimentary domestic lounge access vouchers. That way, you can get up to eight complimentary domestic lounge access annually.

Similarly, effective 1st May 2024, Axis Bank credit cardholders must spend a minimum of Rs. 50,000 in the previous three calendar months to be eligible for complimentary access to domestic airport lounges. The number of complimentary visits depends on the card you hold. The spend-based criteria is waived for Burgundy Private Credit Card, Reserve Credit Card, and Atlas Credit Card.

Most other banks have also reduced the number of complimentary airport lounge access and/or introduced spend-based access. However, the lounge access is still complimentary on some cards without any spend requirement.

2) Capping transfer of reward points to partners and/or devaluation of conversion ratio

Some banks have devalued the conversion ratio for the transfer of credit card reward points to transfer partners. For example, effective 15th January 2024, HDFC Bank has changed the conversion ratio for Accor Live Limitless (ALL) to 2:1 from the earlier 1:1. It means that 2 HDFC credit card reward points will equal 1 ALL point. Earlier, 1 HDFC credit card reward point was equal to 1 ALL points.

Similarly, Axis Bank changed the conversion ratio to 5:2 from the earlier 5:4 for Magnus Credit Card.

Axis Bank has categorised the transfer partners into two groups as follows.

Effective 20th April 2024, an Axis Bank Atlas Credit Card customer can transfer a maximum of 1,50,000 Edge Miles, per customer ID, to various transfer partners in a year. A customer can transfer a maximum of 30,000 Edge Miles to Group A partners and 1,20,000 Edge Miles to Group B partners in a year. Similarly, different Axis Bank credit cards have different overall transfer limits and Group A/B transfer limits.

Earlier, there were no groups and groupwise capping to transfer reward points. The introduction of groups and groupwise capping limits the number of points a cardholder can transfer in a year. For example, for Atlas credit card customers, the Group A transfer limit of 30,000 Edge Miles in a year is low, and they may find it difficult to plan a luxury trip based on these limits.

3) Exclusion of rent, insurance, education, and jewellery payments from earning reward points

Some banks have excluded expenses in some categories from earning reward points. For example, rent payments, insurance premiums, education fees, gold coins/jewellery purchases, etc., have been excluded by some banks from earning reward points. Transactions in these categories are captured under specified four-digit merchant category codes (MCC). These MCC codes are included in the exclusion list.

Most rent payment transactions through credit cards are big-ticket transactions between two individuals. Hence, some people can misuse them to earn credit card reward points, complete milestone spends, reach the spend threshold for an annual fee waiver, etc. Hence, apart from excluding them from earning reward points, some banks have gone ahead and started levying a convenience fee on rent payment transactions.

For example, ICICI Bank doesn’t give reward points on rent payment transactions. It charges a 1% convenience fee on the transaction amount for rent payments. All transactions under 6513 MCC (Merchant Category Code) are categorised as rent payment transactions.

Most rent payment transactions are done through third-party fintech apps/websites that facilitate transactions like rent payment, maintenance charges, education fees, etc. These apps/websites charge a fee for these transactions.

A credit cardholder has to pay a fee to the bank and fintech for rent payment without earning any reward points. So, they need to evaluate the cost involved in doing rent transactions with credit card Versus the benefits and accordingly decide.

Similarly, some banks have excluded transactions related to insurance premium payments, education fees, gold/jewellery purchases, and Government tax transactions from earning reward points. Some banks charge a convenience fee for some of these transactions.

The exclusions of transactions from earning reward points and levy of convenience fee may vary from bank to bank and from card to card. Please check with the bank for the details.

4) Charges on utility bill payments

Some banks have recently started charging a fee for utility bill payments above a specified limit in a month. For example, Yes Bank charges 1% of the transaction amount for utility bill payment transactions of above Rs. 15,000 in a month.

In the case of most households, the monthly expense on utility bill payments is usually less than Rs. 15,000. As long as the monthly utility bill payment transactions are less than the bank’s specified limit, the customer will not be charged the fee, and hence, they need not worry about it.

HDFC Bank has also announced a 1% fee on utility bill payments exceeding Rs. 50,000 for consumer cards per transaction and Rs. 75,000 for business cards per transaction.

Some people may use personal credit cards to pay commercial utility bills. Banks are trying to prevent these types of transactions by levying the convenience fee. It remains to be seen if other banks also take a cue from Yes Bank and HDFC Bank, and start charging a fee on utility bill payments through credit cards.

Why are banks putting restrictions on reward points and levying fees?

Banks want to dissuade customers from using credit cards for transactions in specific categories. Some reasons for that include the low Merchant Discount Rate (MDR) for some of these transactions and to prevent some customers from misusing personal credit cards for some of these commercial transactions.

Finally, banks also want to maintain the profitability of their credit card segment. Hence, they are putting restrictions on reward points and/or levying fees for specific category transactions. With this, they aim to weed out the bad actors, prevent misuse, and will be able to provide credit card benefits on a sustainable basis.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.