Whalesbook
Banks Chase Traveler Loyalty
India's credit card market is rapidly changing, with co-branded cards becoming the fastest-growing segment. They are expected to hold more than 25% of the market share by volume soon. Top banks like Axis Bank, HDFC Bank, and SBI are forming partnerships with airlines like Vistara, Air India, and IndiGo. These cards turn daily spending into airline miles and travel benefits. For airlines, this is a profitable way to sell miles. For banks, it's a key strategy to attract new customers and gather spending data. The loyalty programs themselves can be very valuable, with some airline mileage portfolios worth more than the airlines.
How Cards Drive Spending and Debt
These cards are designed to encourage spending by linking credit to travel. Banks get detailed information about what customers buy, helping them with marketing and boosting card use. For customers, the attraction is earning rewards on everyday items like groceries and shopping, making travel seem more achievable. This has shifted preferences, with using points for flights now more popular in India than getting cashback. Higher travel costs also push people to maximize their points for dream trips. But this greater use of credit for shopping and travel happens as household debt in India is rising sharply. Credit card debt has surged, and more people are failing to make payments, suggesting many are using credit beyond what they can afford.
Regulatory Scrutiny and Hidden Costs
However, serious risks are present. The Reserve Bank of India (RBI) is increasing its watch over co-branded cards. It worries that companies that are not banks might get too much access to customer transaction data and act like the card issuers themselves. These stricter rules mean more work for banks and can limit what partners can do, possibly slowing down new product ideas. For customers, the benefits are not the same for everyone. Travelers who fly often might find annual fees worth it for perks like lounge access and flight vouchers—seen on cards such as the Axis Vistara Infinite or Air India SBI Signature. But those who travel rarely could pay high annual fees for little benefit. Also, reward points can become less valuable over time, and airlines might reduce the worth of miles, posing a risk to cardholders seeking lasting value. With more household debt, rising interest rates, and possible economic slowdowns, banks face a higher risk of customers not repaying loans. Banks might be underestimating what their aggressive customer recruitment strategies truly cost.
What's Next for Travel Cards
The market for co-branded travel cards is predicted to keep growing, driven by people's desire for travel and banks' constant need for customer data. But future growth hinges on successfully managing the complex rules and the growing risks of consumers being too deeply in debt. Banks that can create offerings beyond basic rewards, such as easier ways to use points or links to financial health tools, may stand out. On the other hand, banks that only offer standard airline mile programs could struggle as customers get more selective and regulations become tighter.