Earning and redeeming reward points is one of the most lucrative advantages of leveraging credit cards as a preferred mode of transacting. Over and above the general ease of usage, credit card points provide you allied benefits, example co-branded deals, flat percentage discounts, cashback, facility of easy EMIs and other customized offers that are tailor-made with respect to various types of credit cards.
In a post-Covid world, payments via credit cards have grown exponentially, with consumers preferring to utilize credit cards more often in place of cash. As per the Reserve Bank of India data, the total spends on credit cards have grown 25% annually for the last 10 years. This is primarily due to the cumulative push towards a cashless economy, digital payments and a multi-fold increase in credit cardholders.
The adoption of credit cards also got a fillip on account of Covid-19 as customers preferred a contactless payment option. The RBI also increased the limit of contactless payments from INR 2,000 to INR 5,000 effective from January 1, 2021.
According to RBI data, there were nearly 1.77 crore credit cards in force at the end of January 2012. The number has risen to a little more than 7.02 crore by the end of January 2022. The fast paced growth has enabled banks to offer newer products and to develop lucrative reward points structures for the card holders.
There has been a dramatic change in consumer behavior and preferences wherein they are continuously adapting to a digital world and payments through credit cards is one of the most efficient channels of transacting as it allows customers to pay securely, and to also earn rewards at the same time. Moreover, there is now the option for customers to split large payments into altogether more manageable equated monthly instalments (EMIs).
What are Credit Card Reward Points?
Reward points are a perk or a benefit that customers derive when leveraging a credit card to spend on shopping, travel, dining or bill payments. Typically, credit cards have a flat reward points earning ratio which depends on the type of credit card and the issuing bank. Some banks award differentiated reward points on certain categories which are dependent on the type of card taken by the customer. For instance, there are accelerated reward points on shopping at partner merchants.
For example: the SBI Simply Save credit card gives 10X or 10 times regular reward points for spends at movies, dining, departmental and grocery outlets. Citibank Rewards card gives 1500 bonus rewards points on activation of the card in 30 days from issuance. On spends of INR 20 lakh, Yes First Exclusive card awards 25000 bonus reward points on each card anniversary.
From a rewards point standpoint, consumers should evaluate the below-mentioned attributes:
- Expiry of reward points – Some credit cards carry reward points that expire after a particular time period. There are a handful of cards with the facility of reward points which never expire e.g. IDFC, YES Bank. Customers who are not regular in redeeming points should select cards where the reward points never expire.
- Reward points redemption fee – Most card issuers charge a flat fee for redeeming card points ; whereas a much smaller grouping of card issuers do not collect a redemption fee.
- Minimum reward points – There is a threshold of minimum number of points that can be redeemed; this minimum hurdle varies between the various types of cards. Some allow sachet type redemption whereas others allow redemption only after a certain benchmark has been achieved.
- Blackout of merchant categories – There are certain categories of spends like mobile wallet recharge, government taxes, court fee, among others, which do not entail earning of credit card reward points. These categories differ from issuer to issuer.
- Maximum reward points – Banks also limit the maximum amount of reward and accelerated reward points that a customer can earn on a single transaction, or on any one day or month.
- Cash Withdrawal and EMI conversion – In any case, banks generally don’t offer reward points if a credit card is used to withdraw cash from the ATM. Customers should not use a credit card to effect withdrawals from the ATM as it entails a withdrawal fee, and also interest is charged from the date of withdrawal till the amount has been completely repaid. Some banks do not give points if a transaction has been converted into EMIs.
- Minimum transaction amount – Customers earn credit card points on swiping a card for a minimum transaction amount, or in multiples of the same. Example, you earn 1 point for every INR 50 spent, and therefore 2 points for INR 100; when you spend INR 75, you will still earn 1 reward point. Whereas credit cards issued by some fintechs (example: One Card) have obviated the above challenge and will actually award 1.5 points for the INR 75 transaction.
Issuing banks and companies offer multiple routes for redemption of outstanding reward points; also, the redemption exercise has become more convenient on account of instant online redemption. Customers have an option of redeeming their outstanding points for a multitude of benefits:
- Gift vouchers – Almost all issuing banks allow their reward points to be redeemed against gift vouchers, which are either emailed to customers or sent via postal mail. Banks tie up with multiple brands across categories like apparel stores, entertainment companies, hotels, restaurants – it is indeed a full spectrum offering. Be careful, gift vouchers have an expiry date and must be redeemed in time.
- Catalogue rewards – This is one of the oldest redemption mechanisms, wherein issuing banks maintain a catalogue of available merchandise (apparel, kitchen items, toys, books and periodicals) against which points can be redeemed effortlessly. However, since the redemption is possible only within the catalogued items, it can be restrictive.
- Against bills outstanding – Points can be redeemed against credit card outstanding dues, subject to a pre-defined minimum threshold of points. This is a popular choice of redemption as it gives consumers the freedom to reduce their credit card bills by leveraging reward points. The points can be efficaciously redeemed either by calling the contact center or after logging onto the issuer’s website or mobile app. Customers should of course enquire whether the value of the points have diminished if these are redeemed against outstanding bills, when compared to alternate redemption mechanisms.
- Redemption on partner websites – Some banks have tied-up with online merchants and facilitate purchases at these outlets, to be duly adjusted against reward points. Popular merchants where points can be redeemed are BookMyShow, Yatra.com.
Certain co-branded cards like “Amazon Pay ICICI Bank Credit Card” allow you to earn accelerated reward points (prime members earn an astounding 5%) for Amazon purchases; these points can be redeemed on Amazon itself.
- Redemption at merchant outlets – Additionally, a few banks tie up with offline retail merchants whereby a customer can affect purchases against redemption of reward points. Merchants where offline redemption is available are Shoppers Stop, Clarks, Puma, Meena Bazaar, Godrej Nature’s Basket etc.
- Redemption at bank websites – For instant redemption of reward points, customers can book travel tickets, hotel stays (or similar), on dedicated bank websites. A few popular ones are HDFC Bank Smartbuy, Yes Bank Rewardz.
- Airline frequent flyer programs – Customers have a choice of transferring their reward points to airline frequent flyer programs e.g. customers can choose to transfer their points to Club Vistara, Singapore Airlines KrisFlyer, Etihad Guest etc.
Furthermore, for co-branded credit cards like “Axis bank Vistara” and “6E Rewards Indigo HDFC Bank”, accumulated reward points are utilized for booking tickets and flight upgrades.
- Transfer to hotel loyalty programs – A few issuing banks allow transfer of reward points to the loyalty programs of various hotel chains. These features are generally available on travel credit cards. For example, Citibank Premier Miles card allows transfer of points to Taj Inner Circle.
- Pay with points – A very recent development permits purchases (typically small sums) to be paid through points redemption: a SMS or an email is triggered immediately after the swipe, offering instant redemption.
- Charity – A small number of card issuers allow redemption of reward points for donation to a partner charities.
Card issuers do release glossy advertisements with captivating offers around purchase of luxury goods, travel etc., and with the rapid advancement of digital banking, it has become much easier for customers to track and redeem their reward points. The instant redemption facility can encourage customers to shop beyond their means. Customers should therefore exercise caution so that they don’t spend beyond their repayment capacity, thereby entering a totally avoidable debt trap – the interest rates on overdue balance of credit cards are the highest when compared with any other form of personal credit.
Over the past three decades, credit cards rewards programs across the board have well & truly come of age, offering a huge bouquet of attractive offers and facilities. For maximum value extraction, consumers are advised to assess their own individual spend patterns and select a rewards program which is best aligned to their preferences.