RBI acts on credit card usage for P2P payments like rent and tuition fees: Will it ban them?

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credit cards) were growing at a faster pace. Taking note of the high growth and to avoid an increase in the banks' NPAs, the RBI increased the risk weights for these loans in November 2023. The move has not had much impact on the growth of these loans, specifically credit cards.

In February 2024, the RBI data showed that credit card spending reached Rs. 1.5 lakh crores, a 26% annual growth. Within these spends, the usage of credit cards for payments like rent, tuition fees, vendor payments, society maintenance, etc., to individuals has picked up in the last few years.

The RBI is not comfortable with the usage of credit cards for these payments to individuals. Using credit cards to pay rent and tuition fees to individuals (P2P) doesn't fall within the customer to merchant (P2M) framework of credit cards. So, how are credit cards being used for these transactions, what steps has the RBI taken to prevent them, and will it ban them? Let us understand.

In the last few years, some fintechs have emerged that allow individuals to use credit cards to make payments to other individuals. Fintech collects the payment from the credit cardholder in an escrow account. The amount is then further transferred from the escrow account to the recipient individual's bank account.

The fintechs charge a processing fee of 1 to 3% + GST for facilitating these transactions. Some of these fintech platforms that allow such transactions include: 1) Red Girraffe 2) CRED 3) Housing.com 4) No Broker 5) Paytm 6) Freecharge etc. For example, assume that you want to pay apartment rent to your landlord.