Paying utility bills with credit card to become less attractive from 1 May

From May 1, 2024, Yes Bank and IDFC FIRST Bank credit card customers will have to pay a higher amount as fees for paying utility bills

Paying your utility bills with a credit card might become a less attractive option soon. Yes Bank and IDFC First Bank recently announced a new 1 per cent fee on all utility bill payments made using their credit cards, effective from May 1, 2024.  This means that if your monthly electricity bill is Rs 1,500 and you use a Yes Bank or IDFC First credit card to pay it, you'll be charged an additional Rs 15 on top of the bill amount.

However, customers will have a free usage limit of Rs 15,000 for Yes Bank and Rs 20,000 for IDFC First Bank. This means that if a Yes Bank credit card holder pays a utility bill of less than Rs 15,000 in a statement cycle, they will not be charged any extra fees. But if you end up paying over Rs 15,000 in utility bills in a statement, you will be charged an extra 1 percent fee plus 18 percent GST on it. The same rules apply to IDFC First Bank credit cards, but the free usage limit is Rs 20,000 instead of Rs 15,000.

 

Why the change?

There are two main reasons why banks are implementing these fees:

Lower Merchant Discount Rate (MDR): MDR refers to the fees that payment gateways charge businesses for every credit card transaction.  MDR varies depending on the category (like groceries, travel, etc.).  For utility bill payments, the MDR is typically lower compared to other categories. This means banks earn less money when you use your credit card to pay utilities compared to other purchases.

Potential for business abuse:  Some businesses might misuse personal credit cards to pay their business-related utility bills.  Since the total amount of a typical household's utility bill is usually lower than the credit limit on a personal card, it can be tempting for businesses to exploit this for their benefit.  The extra fee discourages such practices.Banks might struggle to justify offering high rewards on personal cards if they're being used for large business transactions.

Impact on users 

This fee makes using credit cards for utility bills less attractive.

What you can do?

Check for fee waivers: Some banks might offer waivers for utility bill payments with credit cards. Check with your bank to see if they have any such offers.

Explore other payment options: Consider using debit cards, net banking, or UPI (Unified Payments Interface) for your utility bill payments. These options typically don't involve any extra fees.