HSBC credit card issues and business practices

Update: Going by some of the comments, it appears HSBC Bank is on a spree to get rid of customers it can't milk well.

Feb 2013 update: Even citibank is following suit- it doesn't want low value customers. By raising minimum balance to 1 lakh, citi is asking low value clients to close their accounts.

Original post. Looks like HSBC is trying some cheap tricks with me. Not sure if it is only me or others are also facing similar situation, hence sharing the detail here. It is a long post and you may skip this post completely if topics like banking practices, credit cards etc don't interest you.

I've been a HSBC Bank customer since about 4-5 years now. I had subscribed for their gold credit card when they had a life time free offer 5 years ago. Despite being promised as life time free card, I was charged Rs 3000+ tax in annual membership fee (for the primary card and an add on card which was issued unsolicited) I had to fight back and threaten cancellation to get this reversed. [Details] Annual fees were charged few more times and I had to repeat the exercise to get it waived. Despite the hassles the only thing I liked about HSBC is the billing cycle. I could swipe on 20^th of Month 1, bill would come on 20^th of Month 2 and I could pay by first week of Month 3. This helped me save 2 months of SB interest on the amount. I'd been using it once a while and made all my payments on time, without paying any interest.

After Satyam scandal in 2009, bank choose to cut my credit limit drastically. Subsequently I joined other companies and my income levels have improved, but bank never made any attempt at KYC to understand my current profile and update my limit accordingly. I didn't mind because even the reduced limit was way above by normal monthly spend and I never had a need for a credit card with bigger limit. For once in a year kind big ticket purchases I had my other cards to charge. 

Since I wasn't paying any annual charge and never spent too much money on the card or paid interest, looks like HSBC classified me as "Non profitable" customer. I received an email stating that my card will be terminated and I was given an option to upgrade to one of their card schemes with heavy annual fees. I didn't mind doing away with my HSBC card, hence ignored their email. Below is the extract of the email I received from HSBC on June 26th 2012

Dear Cardholder, We at HSBC do periodic reviews of the products held by our customers. Pursuant to a recent review, we are revising our Credit Card propositions and therefore shall be unable to continue servicing your above mentioned Credit Card account. We hereby advise you that the credit limit on your Credit Card XXXX XXXX XXXX XXXX will be cancelled after 30 days from the date of this email. We have noticed that there is a credit balance of  0.28 in your Credit Card account as on 23-Jun-2012. We request you to please contact HSBC customer service centre, within 30 days from the date of this email, for refund of this credit balance and post scrutiny we shall arrange to refund the same. We hereby confirm that there are no outstanding dues payables by you on the above mentioned Credit Card as on 23-Jun-2012. Please note this instruction shall over ride any other communication which you may have received from HSBC. Your Credit Card will be cancelled after 30 days from the date of this email. Please note this is not a reflection of your credit performance on the Credit Card. We request you to destroy the Credit Card plastic by cutting it through the magnetic strip into several pieces. Should you have any queries, please call on our PhoneBanking numbers. In case you have provided continuous payment authority (auto-debit) mandates to any service provider/s kindly provide them with new payment mandates immediately on receipt of this email. Please be advised that reward points in your Credit Card account can be redeemed within 30 days from the date of this email by contacting HSBC's customer service center. In our efforts to continuously update our product suite, we are pleased to offer a few alternative card products which you may wish to apply for. Please refer below for the detailed features and application process.

HSBC MakeMyTrip Platinum Credit Card HSBC MakeMyTrip Signature Credit Card HSBC Platinum Credit Card Annual Fees  499  3,499  2,000

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Since the bank didn't declare the reason for above mail, I conclude that bank found it not profitable to service my credit card in its current usage pattern. It is not binding on the bank to serve me for ever, so their decision can't be questioned. Hence bank decided to terminate my card and give me an option to opt for a card with annual fee.

It is not very usual for banks to terminate credit cards. Because they would have spent money acquiring the credit card customer and the no of card holders a bank has got plays a significant role in Bank’s ability to negotiate great deals with other vendors/partners, Banks usually do not take the step of terminating the card saying “We don’t want to serve you anymore”

However, HSBC seemed to have taken that step with me and I prepared myself to live without HSBC card

Back in 2005-2007, banks were very aggressive issuing credit cards and life time free card scheme, first introduced by ICICI was a big hit. Till then credit card owners were charged for everything- for buying fuel, annual fees and so on. This success forced other banks too to offer life time free card. But while ICICI had volumes, others couldn't sustain free life time card schemes for long due to high cost of servicing.  For each credit card issued, banks incur following expenses:

• Cost of the card, marketing and promotional expenses
• Cost spent on billing systems, online portals, secure login, SMS alerts and other technology
• Cost of reward points and associated services
• Cost of running a call centre
• Payments to be made to VISA
• Cost of insurance on card holder (taken primarily to protect bank's own interests)
• Cost of recovery in case of defaulters and risk of loss.

Above expenses will be recovered only if card holder makes lots of purchases on the card OR pays heavy interest after defaulting on payments. Banks earn money from credit cards through following way

• Commission from merchants (about 1.5 or 2% of transaction amount)
• Interest from defaulters (as high as 35% per year)
• Annual fees
• Additional charges levied (for ATM cash withdrawals, standing instructions, cash payment at branches etc) 
• Some banks make money from co-branded cards, but most of the time co-brand cards are launched to tap into huge customer base of the other brand, without any immediate financial gain to the bank

The first 3 are key sources of income from card holders. If the credit card usage is very low and card holder always pays on time, banks won't recover their expenses. Because of this reality the aggressiveness of life time free credit cards and the overdrive of issuing cards to all and sundry has come down during past few years.

I tried to find out if it was only me or if bank has terminated several more cards as well. I couldn't find any mention of it in online forums.

Twist in the tale
As per the June 26th email, my card should have breathed its last by end of July 2012. However, during first week of august when I asked HSBC if my card is active or inactive, I didn't get any direct answer but only a copy of the above mail. Mid of august I wanted to check if they really cancelled it and used it at an outlet. Card was accepted and transaction went through.

So HSBC didn't really intend to terminate my card, but was only trying to arm-twist me into opting for a card with annual payment.  If I had agreed for a card with annual payment, I would have unnecessarily given up the benefits of life time free card.

This raises following questions:
1. If Bank says it will cancel the card after one month,it should. If it doesn't intend to cancel, why did HSBC send emails stating so and prompting for paid cards? Doesn't it qualify for bad banking practices and arm twisting? Since HSBC failed in its job of doing the work (cancelling the card), can I relieve myself from any responsibility of having to make payments against this card, irrespective of usage?

I sought a response from bank on this, but didn't receive a response yet. 

2. When a bank (or any company) launches a scheme, it should make enough provisions to support the scheme during its tenure. When mobile companies launch life time validity cards, they are expected to support the card for 20 years (their definition of lifetime,I can't help). When long term loans are issued/taken, one should be able to service the loan during that period. If HSBC can't fulfil its honor of life time free credit card for 5-10 years, how can we trust the bank with its insurance policies, loans and other long term financial instruments?

Some banks send statement only if there’s some amount to be paid. HSBC sends statement even if amount payable is ZERO. They were unnecessarily wasting their resource generating and sending those ZERO payable statements

Recently HSBC was in the limelight for facilitating money laundering to fund terror activities. 

Anyways, above post is for information purpose only. It is not a complaint against HSBC. My card is still active and I'll update this post if the bank gives satisfactory response or if there're any interesting developments.

Update: Received an SMS that my credit card has been cancelled. need to check

Disclaimer: Above post has been written in my personal capacity based on what I went through as HSBC customer. May be other customers are having good experience. Use your discretion.

Also read: Devils in pinstripes * ICICI Cycle Banking * The Incredible Banker* ICICI long term customer feedback * Book Review: Devil in pinstripes * SBI Credit card double standards * ATM Usage-Security tips * Best Practices in credit card usage *