Many banks from May 1 will charge an additional 1 per cent fee on all utility payments made using their credit cards. This is in addition to the rent payments mad through credit cards. Earlier this month, Yes Bank and IDFC FIRST Bank declared that the credit card customers will have to pay a higher amount as fees for paying utility bills, but there is also free usage cap.
According to the latest regulations, Yes Bank customers will have a free usage limit of Rs 15,000, while IDFC First Bank customers will have a limit of Rs 20,000. This means that if a Yes Bank credit card holder pays a utility bill of less than Rs 15,000 during a statement cycle, they will not incur any extra charges.
Yes Bank
YES Bank has revised some of its charges on credit cards. ‘Private’ credit card type has been barred from these revisions. As per bank, the changes only affect the fuel fee category on some of the bank’s credit card types. The adjustments are connected to calculating the spending threshold for waiving the yearly and membership fees. Additionally, there is a revision regarding the additional charge for utility transactions.
According to the YES Bank website as of March 29, 2024, “A charge of 1% will be applicable on all utility transactions in a statement cycle.”
IDFC First Bank
IDFC First Bank has said it will impose a 1 per cent surcharge + GST extra when the total amount of credit card payments for utility bills paid exceeds Rs 20,000. The charges are not applicable on FIRST Private Credit Card, LIC Classic Credit Card, and LIC Select Credit Card.
The bank has said there is no surcharge if the total of your utility bill transactions (gas, electricity and internet) within a statement cycle is Rs 20,000 or less. However, if the bill is more than Rs 20,000, there would be an additional 18% GST on top of the 1 per cent surcharge.
Why banks are charging more
A typical household’s total utility bill usually ranges from Rs 10,000 to Rs 15,000. However, for businesses, utility bills can amount to lakhs. Personal credit cards usually offer more rewards than business credit cards. Hence, it can be difficult for banks to provide high rewards on business transactions.
There are two main reasons why banks are implementing these fees:
Lower Merchant Discount Rate (MDR): Merchant Discount Rate (MDR) is the fee levied by payment gateways on businesses for each transaction made via credit card. The rate of MDR can differ based on the category of purchase, such as groceries or travel. The rate of MDR is contingent upon the specific category of transaction, such as groceries, travel, among others. Notably, the MDR assigned to utility bill payments is generally lower than that applied to other categories. Consequently, this results in a reduced revenue generation for banks from credit card transactions associated with utility payments compared to those from other types of purchases.
Potential for business abuse: Certain businesses may be inclined to inappropriately use personal credit cards for covering business-related utility expenses. Given that the average household utility bill often falls well below the credit limit of a personal card, this can appear advantageous to some enterprises. However, additional fees are implemented to deter these practices. Additionally, banks may find it challenging to sustain offering substantial rewards on personal credit cards if they are frequently utilized for significant business transactions.