Scapia has this week slashed credit limits for many, causing concerns and uproar across various social media platforms. Some users reported a drastic reduction in their limits, plummeting from a substantial Rs 8 lakh to a mere Rs 20,000.
Scapia, which has partnered with Federal Bank, joins several leading credit card providers, including HDFC Bank, Axis Bank, SBI Card, and ICICI Bank, that have recently made adjustments to the perks traditionally associated with their credit cards. Notably, ICICI Bank has revised the airport lounge access benefits and reward points rules on 21 credit cards, with changes slated to take effect from April 1.
This shift has been observed across the credit card industry in recent months, with providers citing various reasons for these modifications.
But why the shift?
Credit card providers are grappling with financial strain due to escalating costs, primarily influenced by inflation. The rising prices of goods and services have made offering amenities like lounge access more expensive. In response, credit card firms are reevaluating their offerings to ensure sustainable business practices.
The challenges faced by credit card providers include meeting customer demands amidst inflation, intense competition, and the imperative to enhance profit margins. The rapid growth of digital payments and an expanding pool of eligible credit users further necessitate a comprehensive reassessment of rewards programs.
The resurgence in travel post-COVID-19 has contributed to the reconsideration of benefits. The increased utilisation of lounge access benefits by travelers has added strain to credit card providers, prompting adjustments to strike a balance between offerings and economic sustainability.
Changing dynamics in credit card user behavior, categorised into transactors, revolvers, and EMI users, play a pivotal role in benefit reductions. Revolvers, who carry overdue balances and accrue interest, traditionally represent profitable cardholders for issuers. However, a growing trend of individuals opting for personal loans to settle credit card balances has impacted credit card providers’ margins. The decline in interest income from credit card dues, replaced by lower-interest personal loans, has contributed to the industry’s decreasing profitability.
Future cuts possible
Anticipating the impact of rising cost of funds, industry experts foresee potential devaluations in the near future. To navigate the challenges posed by escalating cost of funds, credit card providers may enhance the premium nature of rewards, potentially leading to increased eligibility criteria for perks. Frequent adjustments to spending thresholds for benefits like lounge visits and reward points conversion rates could become a norm as issuers seek to balance economic realities with consumer expectations.
