Why do credit card companies devalue their cards?

Credit card users in India often notice that the benefits they once enjoyed on their cards—be it cashback, reward points, airport lounge access, or fuel surcharge waivers—tend to shrink over time. What was once a premium offering gradually becomes less attractive, and customers start to feel that their credit card has been “devalued.” This phenomenon of credit card devaluation is not unique to India, but it has become increasingly visible in the Indian context over the last few years. To understand why credit card companies devalue their cards, we need to look at the interplay between customer behavior, market competition, regulatory changes, and the basic economics of running a credit card business.

Credit cards are financial products designed not only to facilitate spending but also to create loyalty and drive profitability. When a credit card issuer launches a new card, it often comes with a host of attractive offers—accelerated reward points, generous welcome bonuses, milestone benefits, or free airport lounge access. These features are meant to attract new users and build a base of active spenders. However, once a card gains traction and enough customers are on board, issuers often reassess the cost-benefit equation. The perks that were once used to acquire new customers become expensive to sustain. The reality is that credit card companies operate on tight margins, and every rupee spent on rewards or benefits must eventually be justified by customer spending, interest income, or interchange revenue. When the costs start to outweigh the returns, devaluation becomes inevitable.

One of the major reasons behind devaluation in India is the tightening of regulatory norms by the Reserve Bank of India (RBI). The RBI has been introducing stricter rules around credit card operations, interchange fees, and data usage. For instance, limitations on late fee charges, caps on interchange fees, and stricter Know Your Customer (KYC) guidelines have increased compliance costs for issuers while reducing their revenue flexibility. Moreover, the RBI’s push for transparency and customer protection means that credit card companies can no longer rely on hidden charges or opaque reward structures to subsidize lavish perks. In response, issuers are forced to reduce costs elsewhere—often by scaling down customer benefits.

Another key driver of devaluation is the evolving consumer behavior in India. Over the last decade, India has seen an explosion of credit card adoption, driven by growing digital payments, rising middle-class incomes, and the convenience of online shopping. However, a large section of these new credit card users tend to be “transactors” rather than “revolvers.” In simpler terms, they pay off their dues in full every month, avoiding interest charges. While this is good for consumers, it’s less profitable for banks, which rely heavily on interest income from customers who revolve their balances. If most customers are using cards purely for rewards and not paying any interest, the bank’s profitability per card declines. To maintain financial sustainability, the issuer must either increase fees or reduce benefits. Naturally, they choose the latter, as fee hikes are more likely to trigger customer churn.

Competition in the Indian credit card market has also played a paradoxical role in this trend. Initially, as new players like Axis Bank, HDFC Bank, SBI Card, and ICICI Bank vied for market share, they launched aggressive offers to outdo each other. Cards like HDFC Infinia, Axis Magnus, and SBI Prime became household names for their exceptional travel and lifestyle benefits. But once these cards reached mass adoption, the cost of sustaining these perks became immense. For example, airport lounges started getting overcrowded because of the sheer number of credit cards offering free access. Lounge operators began to demand higher payouts from banks, and airlines complained about overcrowded facilities. Eventually, banks had little choice but to restrict lounge access, introduce minimum spend thresholds, or entirely remove complimentary entries.

Additionally, macroeconomic factors also play a role. In times of inflation or economic uncertainty, people spend more cautiously, and companies cut back on promotional budgets. For credit card issuers, maintaining high reward rates becomes even harder when interest rates rise or when bad debts increase. Defaults on credit card payments can wipe out the profit from hundreds of transacting customers. As India’s credit card base expands into Tier 2 and Tier 3 cities, issuers face higher credit risk, which again compels them to recalibrate their offerings. Devaluation, therefore, becomes a defensive strategy to maintain profitability without alienating too many users.

Another aspect worth understanding is the changing nature of partnerships that power many credit card benefits. Most reward programs are backed by tie-ups with merchants, airlines, or hotel chains. When these partners renegotiate terms or withdraw from partnerships, issuers are forced to adjust their programs. For example, when a major airline or online retailer changes its reward conversion rates or affiliate commission structures, the card issuer’s cost structure changes immediately. To remain viable, the issuer trims down reward ratios or redefines redemption categories. Similarly, when global card networks like Visa or Mastercard revise their incentive models for issuers, the downstream effect often leads to benefit revisions for cardholders.

There’s also a psychological component to devaluation. Credit card issuers know that most customers do not meticulously calculate the monetary value of their benefits. A reduction in reward rates from, say, 5 percent to 3 percent might go unnoticed by many users as long as the card retains its premium branding. Companies exploit this behavioral tendency by gradually diluting rewards over multiple cycles rather than implementing abrupt cuts. What was once a 10x points category becomes 5x, then 3x, and eventually a capped cashback of a few hundred rupees per month. The devaluation is subtle, progressive, and often disguised under “program updates.”

Despite these challenges, not all devaluation is negative. Sometimes, it reflects a shift toward more sustainable and relevant benefits. For example, many Indian card issuers are moving away from luxury travel benefits toward lifestyle and online commerce rewards. Cards are being restructured to offer better value on categories like dining, groceries, and fuel, which align more closely with everyday spending. This transition, while perceived as a downgrade by premium users, actually broadens the card’s appeal and ensures long-term viability.

In conclusion, credit card devaluation in India is a complex but predictable outcome of economic realities, regulatory pressures, and evolving consumer behavior. While it may disappoint long-time users, it also signals a maturing market that is moving toward more transparency and sustainability. For consumers, the key is to stay alert, review card terms regularly, and not get emotionally attached to any one product. The smart strategy is to use cards tactically—switching or upgrading when necessary—rather than expecting static benefits in a dynamic financial ecosystem. Credit card companies will continue to evolve their offerings, and devaluation will remain a recurring theme, but informed customers can still extract significant value by staying aware and adapting quickly.