Why do credit card companies give such lucrative offers?

Credit card companies in India often attract consumers with offers that seem too good to ignore. From welcome bonuses worth thousands of rupees, free airport lounge access, and cashback on every purchase, to complimentary movie tickets and accelerated reward points, the ecosystem of benefits appears heavily tilted in favor of the customer. Yet, behind these alluring deals lies a carefully calculated business model designed to ensure that the banks and issuers ultimately come out ahead.

The first and most direct reason for such offers is customer acquisition. The Indian market is still underpenetrated in terms of credit card usage compared to developed economies. As of recent data, fewer than 5% of Indians own a credit card, though the number is steadily increasing. For banks and payment networks, getting a customer to sign up for a credit card means gaining access to long-term spending patterns, repayment behavior, and cross-selling opportunities for other financial products such as loans or insurance. To overcome the initial hesitation of consumers, issuers rely on lucrative sign-up offers to generate immediate interest and quick onboarding.

However, the true profitability for credit card companies lies in what is known as slippage. Slippage refers to the portion of benefits or rewards that go unused by the customer. For instance, a credit card may offer 10,000 reward points as a joining bonus, but redemption might require a complicated process, limited merchant options, or specific categories of spending. Many customers either forget to redeem their rewards, delay it until expiry, or find the redemption value not worth the effort. This behavioral tendency allows banks to advertise high-value offers without actually incurring the full cost of them.

Additionally, issuers profit from the interest and late fees generated by a portion of cardholders. While many customers pay their bills in full every month, a significant share either misses payment deadlines or pays only the minimum due. The annualized interest rates on credit cards in India can go as high as 40%, making this a highly profitable segment. Even for diligent payers, the transaction fees charged to merchants (known as interchange or MDR) contribute to the bank’s revenue. The more the customer swipes, the more the issuer earns, which is why they encourage spending through rewards, cashback, and milestone bonuses.

Another layer of strategy comes from partnerships. Many credit card offers are co-branded, such as with airlines, retail chains, or digital platforms. In these cases, the partner brand often subsidizes part of the offer because it gains new customers or higher transaction volumes in return. This reduces the cost burden on the bank while creating a perception of added value for the user.

This also explains why specific discounts are offered on credit cards for online portals like Amazon, Flipkart, Swiggy, or MakeMyTrip. These discounts are not random—they are the result of joint marketing agreements between banks and e-commerce platforms. When a customer pays using a specific credit card, the transaction data flows through that bank, helping both parties gain insights into spending behavior. The e-commerce platform benefits from increased conversions because customers are nudged to buy immediately when they see a discount tied to a payment method. The bank, in turn, gains from the interchange revenue and potentially stronger brand recall. Often, these offers are structured so that the cost of the discount is shared between the merchant and the bank, meaning each side sacrifices a small margin for a larger gain in volume.

In India’s highly competitive e-commerce space, these credit card-linked discounts also act as customer acquisition levers for both sides. Banks can attract tech-savvy, high-spending customers who prefer online shopping, while portals get loyal repeat buyers who may choose their platform over others just for the discount. For example, during major sale events like Flipkart’s Big Billion Days or Amazon’s Great Indian Festival, the instant discount on select bank cards becomes one of the biggest draws. It simplifies the decision for the buyer and enhances the brand visibility of the card issuer.

In India, regulatory factors also influence how generous these offers can be. The Reserve Bank of India keeps a close watch on credit card operations, including fee disclosures and data protection. Still, the competitive environment among private and foreign banks pushes issuers to innovate constantly in their reward structures. This is why cards targeted at premium customers seem especially rewarding, with benefits like complimentary golf sessions or business class lounge access—perks that appeal to a specific demographic but cost the bank relatively little due to bulk partnerships and limited usage.

At the same time, there are exceptions. Some cards, especially those aimed at high-spending professionals, can genuinely offer benefits exceeding their annual fee, provided the user optimizes every aspect—meeting spending thresholds, redeeming points smartly, and avoiding interest charges. For most consumers, however, the cost-benefit balance tilts back toward the issuer because of underutilization or overspending.

Ultimately, the lucrative offers and specific discounts on online portals are not acts of generosity but instruments of behavioral economics and partnership strategy. They work because consumers respond more strongly to immediate, visible savings than to hidden costs or long-term implications. The thrill of an instant discount or earning rewards often overshadows the potential for overspending or paying interest later. In the Indian context, where digital payments and consumer credit are expanding rapidly, credit card companies have mastered the art of rewarding spending while ensuring profitability through data-driven insights, collaborations, and slippage. The lesson for consumers is simple: the offers can indeed be rewarding—but only for those who use them strategically and pay on time.