A few years ago, nobody would have imagined that people would someday be able to pay their monthly rents with credit cards. RedGirraffe was the first to allow its customers to use this facility. Soon other platforms such as NoBroker, Housing, MagicBricks, 99acres, CRED, Paytm, Phonepe, Freecharge and Mobikwik followed. 

 

Each had their own benefits and disadvantages. RedGirraffe had the lowest convenience fees of 0.46% but its user interface was not good. Nobroker had the greatest number of partnerships with banks, while Cred allowed payment to a landlord through UPI. Paytm and PhonePe relied on their wide customer reach. The increase in competition opened new avenues like payment of education fees, brokerage, security deposits, maintenance and office rent, but it also led to less background checking and scrutiny.

 

Premium credit cards like HDFC Infinia/ Diners Club Black or Standard Chartered Utimate offer 3.3% return (cashback, reward points or air miles) on almost all spends. Even after considering the 0.46% charge, users get 2.8% return on a big-ticket transaction like rent. This helped users achieve milestone- and spend-based rewards offered by credit card firms. These additional rewards further pushed up the overall return from rent payments. Users also got automated rent receipts and digital proof of rent payments, besides interest-free credit period of up to 45 days. Also, rent payments helped customers increase their overall credit card spend, whereupon they became eligible for annual fees waiver, credit limit enhancement and card feature upgrades.

 

Credit cards have long been associated with rewards and points which is why many people started prefering this mode of payment to pay their rents. However, it may no longer reward the tenant as it used to as card issuers have started restricting such payments to prevent any misuse.

 

Earlier this month, ICICI Bank announced that with effect from 20 October 2022, ICICI Bank cardholders will be charged 1% fee on rent payments. 

 

SBI Card, on the other hand, will levy a processing fee of Rs99 (exclusive of taxes) on rent payments from 15th November. While India’s largest private lender HDFC Bank has limited reward points from rent payments at 500 points, Yes Bank has limited such transactions to twice a month.  RBL Bank is now allowing only one rent payment in a month, with a maximum cap of 50% of the credit limit for its Shoprite card. Axis Bank has stopped the reward points for rent payment on its ACE card and put a cap on its super premium cards. 

 

Fake Payments and Perils of Credit Rotation

 

While credit card issuers have not given any reason to levy fees on paying rent or limiting the number of transactions, some bankers say that restrictions are being put as these payments may not be bonafide. People are using these services to transfer money to friends and family members instead of landlords as there is no verification of beneficiaries.  

 

People can make fake transactions to their friends or family in the name of rent as these are generally high-value transactions and would give more reward points. Moreover, the cardholder will also be able to meet annual spend milestones that often leads to waiving of a credit card’s renewal fee. 

 

To capture more market share, many platforms either made the rent agreement optional or didn’t even ask for it. So, users could now enter bank details or UPI ID of either friends or family members and claim it as rent. Later, these users could ask the same person to transfer the amount back to their bank accounts. The net impact of these transactions was pure credit rotation which only helped users to create manufactured spending and enjoy the rewards mentioned earlier. While one might feel that everything is fine, one should not ignore the consequences of such transactions.

 

Credit card issuers have been following these developments and when the volume of such transactions went up, many started restricting the spends as well as reward points on rent payments. 

 

Banks charge a fee for cash withdrawal from credit cards. But now they are seeing that customers are virtually withdrawing cash through loopholes in rent payment services. 

 

Though the platforms that enable rent payments also charge a convenience fee, it still turns out to be cheaper than withdrawing cash from credit cards through ATMs, experts highlight while adding that if payments companies acquire landlords as merchants after doing KYC, card issuers should not have a problem.

 

Rent payment through credit card can help earn rewards but using it as a method for credit rotation comes with its own risks. Its charm is slowly fading away as many banks have capped the reward points on rent payments and restricted the use of credit limit for such purpose and this list of banks will continue to grow.