Yes Bank, IDFC First Bank Introduce Surcharge On Credit Card Utility Payments

Yes Bank and IDFC First Bank have recently announced the introduction of a surcharge on utility transactions in statement cycles, effective from 1 May. These utility expenses encompass telecommunications, electricity, gas, water, internet services and cable services.

In recent months, several credit card issuers have begun excluding categories such as utility bills, insurance and rent payments from their reward-earning category lists. Following Axis Bank's significant devaluation of its credit cards, other issuers are also reassessing their card offerings and evaluating the revenue generated by their card portfolios.

Let's delve into what this surcharge on utility transactions entails for credit card users.

The surcharge specifics

Yes Bank will impose a surcharge of 1 per cent plus GST when the total of utility bill payments made with a credit card exceeds Rs 15,000 in a statement cycle. However, this utility surcharge does not apply to Yes Bank's Private credit card. If the aggregate utility bill transactions remain Rs 15,000 or below in a statement cycle, no surcharge is levied. But if it surpasses Rs 15,000, a 1 per cent surcharge plus 18 per cent GST on the surcharge will apply to the excess amount.

On the other hand, IDFC First Bank has announced a surcharge of 1 per cent plus GST only when the total utility bill payments made with a credit card exceed Rs 20,000 in a statement cycle. This surcharge does not apply to the FIRST Private Credit Card, LIC Classic Credit Card and LIC Select Credit Card. Similar to Yes Bank, if the aggregate utility bill transactions remain Rs 20,000 or below in a statement cycle, no surcharge is incurred. But if it exceeds Rs 20,000, a 1 per cent surcharge plus 18 per cent GST on the surcharge will be applicable to the excess amount.

Discouraging misuse in a low-margin business

The introduction of a surcharge on utility transactions follows a trend observed among credit card issuers after a similar surcharge on rental transactions. "It's a low marginal business category for the bank, so don’t be surprised to see other banks introducing surcharge after Yes Bank and IDFC First Bank on utility transactions," remarks Sumanta Mandal, founder of TechnoFino. This indicates that banks operate on thin profit margins relative to their revenues in this segment.

Furthermore, there is a perceived misuse in the utility spending category. "There are business spends in utility transactions using personal credit cards and credit card users are earning rewards on them," adds Mandal. To deter such misuse, banks are implementing surcharges on utility transactions.

Impact on credit card users

Regarding IDFC First Bank's decision to introduce a 1 per cent surcharge only on utility spends exceeding Rs 20,000, Mandal states, "Allowing Rs 20,000 per statement for utility spends without any fees is a decent cap for most credit card holders."

Ankur Mittal, Co-Founder and Chief Technology Officer of Card Insider, views IDFC First Bank's decision as reasonable compared to Yes Bank’s capping of just Rs 15,000, as most users would have utility spends of up to Rs 20,000.