Credit cards were not very popular in India until a few years ago. However, with India emerging as a digital payment powerhouse, credit card payments have become a significant part of it. Indian credit card issuers have issued approximately 9.50 crore credit cards as of October 2023. While the credit card industry has seen exponential growth in the last few years, only 6% of the Indian population currently has access to credit cards. This industry holds immense growth potential. In today's digital payment era, people use their credit cards not only for convenient payment options but also to accumulate reward points and other discount offers. Over the past few months, we have observed many credit card issuers excluding important categories such as utility, insurance, rent payment, etc., from their reward-earning category list. But why are banks focusing on these important categories?
Let's try to find an answer.
A credit card is a powerful financial tool if used correctly. We can earn a significant amount of cashback, reward points, gift vouchers, and air miles simply by spending on our daily needs. However, a few individuals misuse credit cards on a large scale, prompting banks to exclude certain important categories from their reward-earning lists.
To better understand the situation, let me provide you with some examples:
There is another significant issue that the RBI needs to address firmly. Banks and Payment Gateway Providers are not very strict when assigning MCC (Merchant Category Code) to a merchant. Many merchants use a POS machine with a different category MCC just to save MDR, but they are engaged in an entirely different kind of business. For instance, merchants who are actually running a travel agency may have a POS machine with a grocery MCC. Banks and other Payment Gateway Providers should conduct thorough verification before assigning MCC to a merchant.
[Copy available on Moneycontrol: https://www.moneycontrol.com/news/b...r-rewards-due-to-misuse-by-some-11906051.html]
Let's try to find an answer.
A credit card is a powerful financial tool if used correctly. We can earn a significant amount of cashback, reward points, gift vouchers, and air miles simply by spending on our daily needs. However, a few individuals misuse credit cards on a large scale, prompting banks to exclude certain important categories from their reward-earning lists.
To better understand the situation, let me provide you with some examples:
- Utility Bill Payment:
a. Many business owners use their personal credit cards to pay for their office utility bills. Office bills in lakhs are much higher than domestic utility bills. However, paying business utility bills with a personal credit card is not allowed as per the bank's terms and conditions.
b. You might be familiar with cyber cafes. In small cities, many people visit them to pay utility bills. Some cyber cafe owners use their personal credit cards to pay for others' utility bills to earn extra rewards. However, this practice is not allowed according to the bank's terms and conditions.
c. Another issue arises with certain apps/websites where you can pay GST for your business and pay your vendors using credit cards. Many people misuse the vendor payment option to transfer money via their credit card to the bank accounts of their friends and family members who later transfer the same amount back to this person.
The main problem is that these apps use the utility payment MCC, so the bank considers all payments made on such apps as utility payments. While personal credit cards cannot be used for such transactions, business credit cards are allowed to perform them.
- Insurance Payment:
Many insurance agents use their personal credit cards to pay insurance premiums for their clients.
Some individuals play the next-level credit card game. They purchase high-value insurance policies just to meet credit card milestones and earn rewards. Then, during the free-look cancellation period, they cancel the insurance policy and get the money back in their bank account.
- Rent Payment:
A common method of cashing out credit card limits is by paying fake rent to family members or friends. Numerous online rent payment platforms enable customers to pay rent to anyone without a formal rent agreement. People used such websites to pay rent to friends or relatives, leading banks not only to exclude rent from their reward-earning lists but also to impose surcharges on such payments. It's crucial to note that there may be consequences for fake rent payments.
There is another significant issue that the RBI needs to address firmly. Banks and Payment Gateway Providers are not very strict when assigning MCC (Merchant Category Code) to a merchant. Many merchants use a POS machine with a different category MCC just to save MDR, but they are engaged in an entirely different kind of business. For instance, merchants who are actually running a travel agency may have a POS machine with a grocery MCC. Banks and other Payment Gateway Providers should conduct thorough verification before assigning MCC to a merchant.
[Copy available on Moneycontrol: https://www.moneycontrol.com/news/b...r-rewards-due-to-misuse-by-some-11906051.html]
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