Explained: Why are banks adding 1% fees to credit card utility transactions
Explained: Why are banks adding 1% fees to credit card utility transactions
Several banks will apply an extra 1% fee on all utility payments made with their credit cards starting from May 1, 2024.
This new charge comes alongside the already existing practice of charging fees for rent payments via credit cards.
Yes Bank and IDFC FIRST Bank announced adjustments affecting credit card customers, particularly those making utility bill payments earlier this month.
According to the latest regulations, Yes Bank customers will enjoy a free usage limit of Rs 15,000, while IDFC First Bank customers will have a slightly higher limit of Rs 20,000.
This means that as long as a Yes Bank credit card holder’s utility bill payment stays below Rs 15,000 during a statement cycle, no extra charges will apply.
Yes Bank’s changes
YES Bank has revised certain credit card charges, exempting ‘Private’ credit card types from these changes.
The updates primarily impact the fuel fee category on specific credit card types, along with modifications to the spending threshold calculations for waiving annual and membership fees.
Moreover, a new 1% charge will be applied to all utility transactions within a statement cycle, according to the YES Bank website as of March 29, 2024.
IDFC First Bank’s announcement
IDFC First Bank is set to impose a 1% surcharge plus GST on credit card payments exceeding Rs 20,000 for utility bills. However, this surcharge does not apply to FIRST Private Credit Card, LIC Classic Credit Card, and LIC Select Credit Card holders.
The bank clarified that if utility bill payments remain at Rs 20,000 or below within a statement cycle, no surcharge will be levied. For bills exceeding Rs 20,000, an additional 18% GST will be added to the 1% surcharge.
Reasons behind the 1% fee increase
The move by banks to introduce these fees is motivated by two main factors.
Firstly, the Merchant Discount Rate (MDR) associated with utility bill payments is typically lower than that of other purchase categories like groceries or travel. This results in reduced revenue for banks from credit card transactions related to utility payments.
Secondly, banks seek to deter potential misuse of personal credit cards by businesses for covering significant utility expenses.
By introducing additional fees, banks aim to maintain sustainable reward programs for personal credit card users without compromising their financial stability.