Credit Card: Banks are charging more for utility payments made using credit cards after rent payments. Recently, Yes Bank and IDFC First Bank declared that, as of May 1, 2024, they will impose a 1 percent surcharge to all utility payments made with their credit cards.
Yes Bank and IDFC First Bank
For Yes Bank and IDFC First Bank, customers would have a free usage limit of Rs 15,000 and Rs 20,000, respectively. This implies that there won’t be any additional costs for Yes Bank credit card holders who pay a utility payment totaling less than Rs 15,000 within a statement cycle.
On the other hand, a customer will be assessed an additional 1 percent surcharge in addition to 18 percent GST on any utility bills that exceed Rs 15,000 in a statement. Credit cards issued by IDFC First Bank are subject to the same regulations; however, the free usage cap is Rs 20,000 rather than Rs 15,000.
It wasn’t always this way, though. There used to be no additional costs associated with paying utility bills, and we would receive substantial rewards for doing so. Why then are banks eager to put these regulations into effect?
Low Margins in Utility Category
Because the utility category has low margins, banks make relatively less money from MDR/interchange fees. All categories have different MDRs, which vary based on numerous circumstances. Payment gateway providers frequently provide MDR costs on categories like groceries, utilities, and education a discount. Consequently, when consumers use their cards in certain areas, banks receive a lower interchange fee.
Business Owners’ Use of Personal Credit Cards
Many business owners pay their business-related utility bills with their personal credit cards. A typical household’s entire utility bill typically falls between Rs 10,000 and Rs 15,000, but commercial utility expenditures might reach thousands. Personal credit cards usually come with greater benefits than corporate credit cards from banks.
As a result, banks might find it difficult to offer large rewards for corporate transactions. A few websites and apps, including BharatNXT, provide credit card-based business payment services. These platforms allow users to pay their suppliers, contractors, workers, GST, and other invoices associated with their businesses.
Continued Use of Personal Credit Cards for Business Expenses
Many people continue to use their personal credit cards for these kinds of purchases even though it is prohibited by the MITC for personal credit cards issued by all card issuers in India. The primary source of the problem is that BharatNXT and other business payment service providers are classified as utility category MCC.
All payments made using these applications are therefore classified as utility payments. This issue arises when MCC tags businesses incorrectly. Payment gateway providers and acquiring banks bear the task of properly tagging MCC and confirming business categories. Regretfully, we frequently witness cases when firms are incorrectly assigned MCCs.
