The points you do not own

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For about a fortnight, India's personal finance internet has been consumed by an argument that has nothing to do with the markets, investments or retirement.

HDFC Bank Ltd has changed how it runs a premium credit card, which is apparently a prestigious, invitation-only object of desire. The bank has said that in the future, this card will be only for customers who either spend a lot or have a large ‘relationship value’ with it. Everyone else's cards will be closed or downgraded.

The response has been extraordinary: X threads of hundreds of messages, screenshots of relationship managers' emails circulated as evidence, talk of complaints to the Reserve Bank of India (RBI) and consumer forums.

To be fair, some of that anger is justified. If (and I don't know for a fact if this is true) a bank collects an annual fee and then, before the year is over, tells customers they don't deserve to be members, then it has taken money for a promise it has since withdrawn, and asking a regulator to take a view is fair.

But what has amazed me is the sheer quality and intensity of the effort going into the matter. If you read the threads, you will find a standard of work worthy of a good investment research team. People have created Excel spreadsheets to track their spending. They know which categories are counted, how settlements can push a transaction into the next financial year. They have read all the fine print and understood it. This is sustained, numerate analytical work on a question that matters intensely to them.

Ask one of these people what the expense ratio on their mutual fund is, or how their portfolio is split between equity and fixed income. I've done such experiments, and I know the answer.

This asymmetry isn't foolishness or laziness. A credit card programme is designed as a game that produces immediate rewards. You work out a clever manoeuvre, it pays out within the month (actually, it makes you spend more), and you have won something. Investments offer no such excitement or sense of victory. Given the choice between a game that settles this week and one that settles in twenty years, people will choose the fast game, and the financial industry knows it.

Consider the arithmetic of the slow game. On a portfolio of ₹ 50 lakh, the gap between a fund charging 0.5% a year and one charging 1.5% is ₹ 50,000 in the first year alone, and since that money never gets invested, it widens every year after. One fortnight of the effort now going into spending thresholds, spent instead on fund costs and asset allocation, is worth more than every reward point you will ever earn.

The bank's own notice tells holders that this is not a product but a reflection of a relationship. That is exactly right, and it is exactly the problem. A relationship is something the other party can end. Which of these things do you actually own? Points, tiers, lounge access, and relationship status are not your property. A loyalty programme exists to help the other party make more money, and they have written the terms and conditions to ensure it.

Compare this with what an investor holds.