As we near the end of 2023, it's time to look back at the eventful year in the Indian credit card industry. We've witnessed significant shifts, such as Axis Magnus and Axis Reserve cards transforming from nearly useless to incredibly rewarding and then back to being relatively less rewarding. However, it's not all been positive, as several banks have imposed restrictions on various important categories, including utility bills, rent, government fees, and groceries, affecting their eligibility for earning rewards. What's behind these devaluations? Let's focus on travel-focused credit cards and explore why banks are making these changes.
When we apply for a credit card, we all agree to the Most Important Terms and Conditions (MITC) associated with that card. Unfortunately, many of us tend to overlook the fine print within these MITCs. One common stipulation found in the MITCs of all banks is that "personal credit cards should only be used for personal expenses."
This is where the notorious concept of "manufactured spending" (MS) comes into play. One common form of manufactured spending is purchasing items for someone else, who then reimburses you. For example, if you buy something for a friend using your credit card and they pay you back, it's considered a manufactured spend. So far, it may seem harmless, right? But what if I told you that there are websites and apps that encourage you to buy items for people living in different parts of the country, acting as intermediaries? Would you still think it's acceptable?
I won't mention any specific names, but some individuals have turned this method into a full-scale business, which directly goes against the bank's MITCs. Ankush Dixit, the Founder of Yaper, an app that serves as an intermediary for credit card users to buy products for others, shared on his LinkedIn profile that Yaper facilitated orders worth Rs. 12 crores on the first day of Flipkart's Big Billion Days Sale in 2022.
This practice is a primary reason for recent credit card devaluations. Due to the existence of such websites and apps, banks have begun withholding regular reward points when customers take advantage of sales discounts.
While you may be familiar with these practices, there are other groups or businesses that are exploiting personal credit cards. Nowadays, travel agents are using personal travel-focused credit cards to amass reward points and air miles. Let me illustrate this with a real-life example:
Take Ramesh, a travel agent based in Gujarat (using a pseudonym to protect his identity), for instance. He used his Axis Magnus credit card to book flight tickets via the Axis Travel Edge portal, earning 5X EDGE Points. Due to the high volume of transactions, he accumulated substantial air miles and hotel loyalty points within a short period. And that's not all; he sold his air miles and hotel points for a significant amount. As a result of such rampant misuse, Axis Bank and many other banks were forced to devalue their credit cards and, in some cases, reduce the value of reward points.
We've all noticed that Axis Bank has imposed certain restrictions on how frequently you can link or change frequent flyer or hotel loyalty programs within a specific timeframe. But do you know the actual reason behind this?
The reason is that people were selling their Axis EDGE reward points, and this goes against the terms and conditions set by the bank. Let me illustrate this with an example:
Imagine Suresh wants to purchase 50,000 ITC Green Points from Ramesh in exchange for cash. Ramesh simply needs to enter Suresh's ITC Account ID while transferring his EDGE Points to ITC Green Points through the TravelEDGE portal, and the points get credited to Suresh's ITC account.
Nowadays, people transfer their credit card reward points to their own Frequent Flyer Program (FFP) accounts and later sell the entire account by sharing login credentials. You can find numerous groups on Telegram engaged in such activities.
Notably, travel agents and Airmiles Brokers are transferring large quantities of points daily, not just from Axis Bank but also from numerous other credit card issuers. Because of these practices, we've witnessed the termination of many Frequent Flyer Program and hotel loyalty program accounts.
Travel agents and airmiles brokers are a major reason for the recent devaluation of credit cards.
But have you ever wondered how a few people manage to accumulate such massive quantities of air miles using their credit cards? Let me tell you about a few professionals and their practices.
Chartered Accountants (CAs) utilize their credit cards to pay taxes for their clients, even though there are only a handful of credit cards that offer reward points for government payments.
Many insurance agents use their personal credit cards to pay their clients' insurance premiums.
In many areas, cyber cafes use their credit cards to pay people's utility bills, and you can imagine how many rewards they can amass through this method.
Many business owners use their personal credit cards to cover office expenses such as electricity bills, rent, and various other business costs. There are a few apps available that can be used by business owners to pay their vendors, employees' salaries and GST via credit cards for a nominal fee.
I don't think banks can entirely prevent such practices, but they can certainly monitor their customers' usage and, after a certain limit, ask for clarification and take necessary action against customers who misuse their credit cards. A normal credit card user typically does not pay insurance premiums exceeding 30% to 40% of their declared annual income. Similarly, a regular household utility bill should not exceed Rs. 20,000 (normally). Banks can easily monitor these aspects if they wish to do so.
In conclusion, while credit card devaluation is a normal part of the industry, these practices by travel agents, and other brokers are accelerating the devaluation process. Instead of devaluing credit cards for everyone, banks should focus on preventing these practices.
When we apply for a credit card, we all agree to the Most Important Terms and Conditions (MITC) associated with that card. Unfortunately, many of us tend to overlook the fine print within these MITCs. One common stipulation found in the MITCs of all banks is that "personal credit cards should only be used for personal expenses."
This is where the notorious concept of "manufactured spending" (MS) comes into play. One common form of manufactured spending is purchasing items for someone else, who then reimburses you. For example, if you buy something for a friend using your credit card and they pay you back, it's considered a manufactured spend. So far, it may seem harmless, right? But what if I told you that there are websites and apps that encourage you to buy items for people living in different parts of the country, acting as intermediaries? Would you still think it's acceptable?
I won't mention any specific names, but some individuals have turned this method into a full-scale business, which directly goes against the bank's MITCs. Ankush Dixit, the Founder of Yaper, an app that serves as an intermediary for credit card users to buy products for others, shared on his LinkedIn profile that Yaper facilitated orders worth Rs. 12 crores on the first day of Flipkart's Big Billion Days Sale in 2022.
This practice is a primary reason for recent credit card devaluations. Due to the existence of such websites and apps, banks have begun withholding regular reward points when customers take advantage of sales discounts.
While you may be familiar with these practices, there are other groups or businesses that are exploiting personal credit cards. Nowadays, travel agents are using personal travel-focused credit cards to amass reward points and air miles. Let me illustrate this with a real-life example:
Take Ramesh, a travel agent based in Gujarat (using a pseudonym to protect his identity), for instance. He used his Axis Magnus credit card to book flight tickets via the Axis Travel Edge portal, earning 5X EDGE Points. Due to the high volume of transactions, he accumulated substantial air miles and hotel loyalty points within a short period. And that's not all; he sold his air miles and hotel points for a significant amount. As a result of such rampant misuse, Axis Bank and many other banks were forced to devalue their credit cards and, in some cases, reduce the value of reward points.
We've all noticed that Axis Bank has imposed certain restrictions on how frequently you can link or change frequent flyer or hotel loyalty programs within a specific timeframe. But do you know the actual reason behind this?
The reason is that people were selling their Axis EDGE reward points, and this goes against the terms and conditions set by the bank. Let me illustrate this with an example:
Imagine Suresh wants to purchase 50,000 ITC Green Points from Ramesh in exchange for cash. Ramesh simply needs to enter Suresh's ITC Account ID while transferring his EDGE Points to ITC Green Points through the TravelEDGE portal, and the points get credited to Suresh's ITC account.
Nowadays, people transfer their credit card reward points to their own Frequent Flyer Program (FFP) accounts and later sell the entire account by sharing login credentials. You can find numerous groups on Telegram engaged in such activities.
Notably, travel agents and Airmiles Brokers are transferring large quantities of points daily, not just from Axis Bank but also from numerous other credit card issuers. Because of these practices, we've witnessed the termination of many Frequent Flyer Program and hotel loyalty program accounts.
Travel agents and airmiles brokers are a major reason for the recent devaluation of credit cards.
But have you ever wondered how a few people manage to accumulate such massive quantities of air miles using their credit cards? Let me tell you about a few professionals and their practices.
Chartered Accountants (CAs) utilize their credit cards to pay taxes for their clients, even though there are only a handful of credit cards that offer reward points for government payments.
Many insurance agents use their personal credit cards to pay their clients' insurance premiums.
In many areas, cyber cafes use their credit cards to pay people's utility bills, and you can imagine how many rewards they can amass through this method.
Many business owners use their personal credit cards to cover office expenses such as electricity bills, rent, and various other business costs. There are a few apps available that can be used by business owners to pay their vendors, employees' salaries and GST via credit cards for a nominal fee.
I don't think banks can entirely prevent such practices, but they can certainly monitor their customers' usage and, after a certain limit, ask for clarification and take necessary action against customers who misuse their credit cards. A normal credit card user typically does not pay insurance premiums exceeding 30% to 40% of their declared annual income. Similarly, a regular household utility bill should not exceed Rs. 20,000 (normally). Banks can easily monitor these aspects if they wish to do so.
In conclusion, while credit card devaluation is a normal part of the industry, these practices by travel agents, and other brokers are accelerating the devaluation process. Instead of devaluing credit cards for everyone, banks should focus on preventing these practices.
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