In recent years, the Reserve Bank of India (RBI) has raised concerns over the growing trend of using credit cards for peer-to-peer (P2P) transactions such as rent payments and tuition fees. Despite the RBI’s efforts to curb this practice by increasing risk weights for unsecured loans in 2023, the usage of credit cards for such transactions has continued to surge.
This phenomenon has been facilitated by emerging fintech platforms like Red Girraffe, CRED, and others, which act as intermediaries, allowing individuals to use credit cards for payments to other individuals. The process involves the fintech collecting payment from the credit cardholder, holding it in an escrow account, and then transferring it to the recipient’s bank account after necessary verifications.
Customers are drawn to using credit cards for rent payments due to various advantages such as free credit periods, reward points, and the opportunity to meet spend-based milestones for fee waivers. However, banks and the RBI express discomfort with this practice, citing concerns about the lack of verification in P2P transactions and the deviation from the traditional customer-to-merchant framework.
In response, banks have begun imposing restrictions such as excluding rent transactions from reward points and annual fee waivers, as well as levying processing fees for such transactions. Fintech platforms are also adapting their services to comply with regulatory requirements.
While the RBI has engaged with fintech platforms to gather information on these transactions, the possibility of a complete ban on credit card usage for P2P transactions remains uncertain.
While bad actors misusing credit cards for high-ticket transactions pose a challenge, genuine customers and fintechs hope that regulatory measures will not stifle the convenience and benefits associated with credit card payments. The evolving landscape suggests a need for continued dialogue and vigilance to balance innovation with regulatory compliance.
