Daybreak - Credit-card whizzes are beating banks at their own game

Episode Date: September 21, 2023

For a people who were quite averse to the whole concept of credit, Indians really seem to be developing a new found love for the piece of plastic and banks have been happy to ride the wave. But lately they've been left quite baffled because they are being being beaten at their own game. A growing community of people are constantly finding hacks to take advantage of the loopholes in credit-card reward systems. For some of them , in fact, it's going so well that they’ve turned their secret operations into lucrative businesses. Turns out they can make more money from it than their 9 to 5 jobs.Meanwhile banks have realised they are being taken for a ride so some have taken extra security measures to keep such tricksters at bay.**Correction: The credit for this story was mistakenly attributed to Gaurav Noronha whereas the actual writer is Rounak Kumar Gunjan. We apologise for the errorRecommendationCredit-card whizzes outsmart banks at their own gameDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Banks are getting outsmarted at their own game. I'm talking about the game of selling credit cards.

For people who were quite a worse to the whole idea of credit in general, Indians seem to be developing a newfound love for the piece of plastic. As of July this year, there were 90 million credit cards in circulation across the country. And when you think about it, credit cards are quite intriguing. I mean, the way banks use so many tactics or, should I say, tricks, to make you spend more. Like by hanging the credit cards rewards carry it, free airport lounge access, reward points, discounts, you name it. The idea is to get people to spend more money than they can actually afford in a month

so that they have no option but to take a loan from the bank. And that is how banks make money off these pieces of plastic. But lately, banks have been left quite baffled because some people are tricking them at their own game. These people are relentless. They are constantly finding hacks to take advantage of the loopholes in the credit card reward systems. Some of them even think that there's some kind of new age Robinhood who are performing a form of social service helping people outsmart the banks.

In fact, it's going so well for a few of them that they've actually turned their secret operations into lucrative businesses and they're making more money from it than their 9 to 5 jobs. Banks have now obviously realized that they're being taken for a ride so some have taken extra security measures to keep these tricksters at bay. but none of it seems to be working. Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Das Sharma and I Don't Chase the News Cycle.

Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 22nd of September. Begin with a story that is actually based on real events. In fact, my colleague, the Ken reporter, Gorev Norona, spoke to this person, but for reasons that will be quite obvious to you in the next few minutes, he did not want the ken to reveal his full name. So we'll just call him Vivek. Vivek is a 32-year-old civil engineer who lives in Delhi, and he has a secret. A secret so

confidential that even his parents don't know about it. It is a hidden source of income. He likes to call it a secret social service and it pays him more than his regular job. It all started two years ago when he became friends with a grocer. The two got together and used the grocer's point of sale or POS machine to put through a credit card transaction worth 80,000 rupees. Later, he asked the grocer friend to help him turn that spending into cash after deducting the merchant discount rate or MDR. MDR is the fee that a business business pays to the issuing bank that processes its debit and credit card transactions. By the end of that month, Vivek paid off his credit card bill the full 80,000 rupees.

And the cashback that he got from using his credit card turned out to be more than what he gave up as the merchant fee. And that, dear listeners, is how Vivek figure out how to make money by manufacturing spending. And now, Vivek's secret venture is a full-fledged business. And it's quite simple. He encashes credit cards for his clients, helps them earn reward points and cashbacks, and obviously charges a fee. As of now, he oversees three POS machines and has a steady client base of over 50 people every month. Sometimes it's as many as 80 people. This new business of his makes Vivek one lakh rupees every month. And Vivek is not the only one doing this. There is a growing community of credit card wonks and tricksters like Vivek. Some of them have humongous groups on

messaging apps like Telegram, WhatsApp and Discord with thousands of members. They also use the social media platform, X, or Twitter, to share tips and tricks on how to take advantage of loopholes in the credit card rewards system. Ghorov spoke to Vivek and he told him, and I'm quoting, people have cards with all these promised rewards, but sometimes they can't spend enough to actually enjoy those benefits. We step in to help them unlock that level. Isn't that like social service? End quote. Well, Vivek, the banks certainly don't think so. So what are these loopholes in the system that folks like Vivek are exploiting? Stay tuned to find out. The Robin Hood of our story, I mean, Vivek, actually introduced Gaurav to a few group admins who run these kind of operations on

Telegram. One of them, who prefers not to be named, obviously, told Gorev about his favorite bug so far. Access Bank's reserve credit card. You see, Access Bank positions its reserve credit card as an ultra-premium product. It involves an initial fee of 50,000 rupees and it provides a welcome benefit of 50,000 reward points along with other advantages like airport transfers. So in December two years ago, this telegram group admin found the glitch. He explained it to us, and I'm quoting, all one needed to do was use up those 50,000 reward points, call access bank, report for a lost card, get the present card blocked and request for a replacement. The new card again came with 50,000 reward points.

end quote. Now, normally these reward points are only replenished after a year when users pay a 50,000 renewal fee. But this guy told again that he got his reserve card replaced 11 times. Two credit card wonks told Gordov that if used smartly, 50,000 reward points can cover the cost of a one-way ticket from Mumbai to Dublin. Access Bank only managed to plug this gap in May this year. a whole two years later. This, dear listeners, is just a result of one glitch. So you can imagine the extent of this whole thing,

with 90 million credit cards in circulation. So now that they've found out, what are banks doing? Coming up next. The Ken has found that almost a dozen exploits in the last year or so have forced lenders like Access Bank, RBL Bank, and HDFC Bank to take action. We sent the bank some questions, but they did not give a response.

Two senior executives of Axis Bank who did not want to be named told again that the devaluation of Access Bank's credit cards is because of their misuse. One of them gave the example of the Magnus Credit Card. Again, it is a premium product that requires an annual income in excess of 20 lakh rupees. But when the bank started giving 25,000 reward points to people for buying the card, the sales shot up. Later, the bank found out that there were many users who were misusing the card left, right and center. So in August this year, Axis Bank sent these users emails, and also, for most of them, the bank took back the reward points that they had given them earlier.

Also, no thanks to the devaluation, Access Bank is revising the benefits for users, and that is reducing the appeal of Magnus and Reserve Credit Cards, which used to be considered premium. Plus, banks like ICICI Bank, RBL Bank and HGFC Bank are implementing an extra layer of security. They are scanning the internet for discussions about vulnerabilities and loopholes. A RBL Bank executive told us that this layer did not exist about a year ago. Dear listeners, this is just a part of GORO's fascinating report on how the credit card reward system is being hacked in India. There is a lot more in the report about other loopholes, the ways in which they're being exploited, and what more banks are doing to plug them. I highly recommend that you read it after listening to this episode.

It is super interesting, I promise. I've linked it to the show notes. Thank you for listening. Hope you have a lovely weekend. I'll catch you on Monday with a brand new story. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters,

subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.