Banks Implementing 1% Fee On Credit Card Utility Payments: Reasons Explained

Following rent payments, banks are now imposing additional charges on utility payments made via credit cards. Yes Bank and IDFC First Bank recently announced a 1 per cent fee on all utility payments using their credit cards, effective 1 May 2024. Yes Bank sets a free usage limit of Rs 15,000, while IDFC First Bank's limit is Rs 20,000. Payments within these limits won't incur extra fees, but amounts exceeding them will be subject to a 1 per cent fee plus 18 per cent GST.

Previously, customers enjoyed rewards and faced no additional charges for utility payments. So, why are banks implementing these rules now?
- Low Margins: Utility payments yield low margins for banks due to lower MDR/interchange fees compared to other categories like education and grocery.
- Personal Expenses on Official Cards: Many businesspeople use personal credit cards for business-related utility bills, leading to challenges in providing high rewards on business transactions.
- Incorrect Tagging: Some payment service providers incorrectly tag business transactions as utility payments, affecting rewards and fees.

These factors drive banks to either remove rewards or impose extra fees on utility payments. If one bank initiates such changes, others may follow suit. However, banks generally offer free usage limits to mitigate concerns for regular consumers. Competition and public pressure may also lead to revisions in bank policies, as seen with Yes Bank's introduction of a Rs 15,000 free-usage limit. For businesspersons, applying for business credit cards may be a more suitable option, considering the current landscape.