Starting May 1, several banks will introduce an extra 1% charge on credit card transactions for utility payments, in addition to those for rent. Yes Bank and IDFC FIRST Bank recently announced that their credit card users will face increased fees for utility bill payments, albeit with a cap on free usage.
As per the most recent regulations, Yes Bank customers will have a free usage limit of Rs 15,000, while IDFC First Bank customers will be capped at Rs 20,000. Therefore, if a Yes Bank credit card holder pays a utility bill amounting to less than Rs 15,000 during a statement cycle, they won’t encounter any extra charges.
YES Bank
YES Bank has updated certain credit card charges, with the exclusion of the ‘Private’ credit card type from these revisions. The alterations primarily impact the fuel fee category across specific credit card types. These adjustments are linked to determining the spending threshold for waiving yearly and membership fees. Furthermore, there is a modification concerning the additional charge for utility transactions.
As per the information available on the YES Bank website as of March 29, 2024, a 1% charge will be levied on all utility transactions within a statement cycle.
IDFC First Bank
IDFC First Bank will apply a 1% surcharge, plus additional GST when the cumulative credit card payments for utility bills exceed Rs 20,000. However, this surcharge does not apply to the FIRST Private Credit Card, LIC Classic Credit Card, and LIC Select Credit Card.
The bank specifies that no surcharge will be imposed if the total utility bill transactions (including gas, electricity, and internet) within a statement cycle amount to Rs 20,000 or less. Nevertheless, if the bill surpasses Rs 20,000, an additional 18% GST will be added to the 1% surcharge.
Possible Reasons
Typically, a household’s total utility bill falls within the range of Rs 10,000 to Rs 15,000, while for businesses, utility bills can reach into lakhs. Personal credit cards commonly offer more rewards compared to business credit cards, posing a challenge for banks to extend high rewards on business transactions.
Two primary reasons are driving the implementation of these fees:
- Reduced Merchant Discount Rate (MDR): MDR, charged by payment gateways to businesses for each credit card transaction, varies based on the purchase category, like groceries or travel. Notably, the MDR for utility bill payments tends to be lower than other categories, resulting in reduced revenue for banks from such transactions.
- Potential for misuse in business transactions: Some businesses may misuse personal credit cards to cover utility expenses, taking advantage of the relatively low average household utility bill compared to personal card credit limits. To discourage such practices and maintain sustainability in offering rewards, banks introduce additional fees on utility payments made through personal credit cards.
Also Read: RBI releases guidelines for voluntary conversion of Small Finance Banks (SFBs) into universal banks
