Some banks have decided to impose a 1% fee on utility payments with their credit cards. Yes Bank and IDFC First Bank recently announced the implementation of an additional 1% fee on all utility payments made using their credit cards, effective May 1, 2024. This decision marks a significant departure from previous practices where utility payments garnered rewards without additional charges.
Customers will be subject to the extra fee if their utility payments exceed a specified threshold. Beyond this, the 1% charge, along with an 18% Goods and Services Tax (GST), will apply. Yes Bank has set a free usage limit of Rs 15,000, while IDFC First Bank’s limit stands at Rs 20,000. Transactions falling within these limits will not attract additional fees.
But, why have these banks decided to impose an additional 1% fee on utility payments? The rationale behind this move is multifaceted. There are several factors influencing the banks’ decision:
First, banks traditionally earn lower margins from utility payments compared to other categories. The Merchant Discount Rate (MDR) or interchange fees in the utility category are notably reduced. This impacts the revenue generated by banks.
Second, the widespread practice of using personal credit cards for business-related utility payments. Unlike personal credit cards, which typically offer higher rewards, business credit cards may not extend the same level of benefits for such transactions, creating a disparity in rewards allocation.
Third, despite regulations prohibiting the use of personal credit cards for business transactions, many individuals continue to employ this practice. This issue is compounded by the misclassification of transactions by payment gateway providers and acquiring banks, wherein business-related payments are incorrectly tagged as utility payments, thereby circumventing intended restrictions.
The implementation of the 1% fee on utility payment has sparked concerns among consumers, particularly business owners, who rely on credit card payments for their operational expenses. However, banks have sought to alleviate these concerns by offering free usage limits, albeit with varying thresholds, to mitigate the impact on customers.
Also Read: ICICI Bank Blocks Thousands Of Credit Cards: Know Why?
In response to public outcry and competitive pressures, banks have demonstrated a willingness to revise their policies. For instance, following social media scrutiny, Yes Bank revised its initial decision to include a Rs 15,000 free-usage limit.
While the imposition of fees on utility payments via credit cards may present challenges for certain segments of consumers. As the banking landscape continues to evolve, consumers should stay informed. Keep track of changes in policies and explore alternative financial solutions to meet their needs.
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