PhonePe, Paytm & CRED Halt Rent Payments Via Credit Cards

A day after the Reserve Bank of India (RBI) issued new master directions for payment aggregators (PAs), fintech giants like PhonePe, Paytm, and CRED have reportedly halted rental payments via credit cards on their platforms. 

Sources told Economic Times that the rent payments routed via credit cards were impacted, as landlords are not often onboarded on fintech platforms with full KYC. In effect, payment aggregators were acting as a marketplace for landlords without merchant KYC.

RBI’s new mandates direct PAs to aggregate funds only for the merchant with whom it has a contractual relationship. Additionally, payment aggregators are also barred from carrying out “marketplace business”.

“For such transactions (rental payments), the RBI wants payments to be routed through channels like BBPS. And if one can qualify as a marketplace, the way it is defined in the new circular,… it will need to make changes to ways of (our) operation, which is a big ask,” an industry insider reportedly said.

With this, users will no longer be able to avail fintech apps to make their rent payments, and will now have to opt for traditional online banking or cheques to make such transactions. On the other hand, fintechs have lost a lucrative segment, which brought additional revenue from convenience fees and boosted card spending. 

Meanwhile, fintech executives also reportedly underlined that they were bracing for some short-term pains with regard to onboarding new customers and ensuring all their merchants are KYC verified.

A Brewing Storm

This comes a year after the RBI, in March 2024, began raising concerns over peer-to-peer (P2P) credit card payments made via third-party service providers. At the time, it was reported that the central bank had flagged instances of retail customers using credit cards to pay rent and tuition fees via third-party apps to earn reward points.

“Credit card transactions are only meant to be between merchants and customers (P2M). If funds are being routed through an escrow account operated by a third party, it bypasses the regulations and will not be allowed,” a senior official had reportedly said then.

Quickly afterwards, PhonePe, Paytm, MobiKwik, Freecharge and Amazon Pay stopped accepting rent payments through credit cards. However, many platforms resumed the service after shoring up KYC mandates and adding more compliances for their end users.

That said, the new master directions for payments aggregators formally categorises payment aggregators into three distinct groups to regulate their specific activities. In addition, the new rules direct non-bank PAs to apply for fresh authorisation by December 31.

The RBI also set a new INR 15 Cr minimum net worth threshold for companies seeking PA licences and attain a minimum net worth of INR 25 Cr by the end of third financial year of the grant of authorisation.