RBI is concerned about using credit cards to pay rent and tuition fees.

The use of credit cards in the country is steadily increasing with a large number of people using these for payment including rent payments, tuition fees, vendor payments, and society maintenance charges. According to the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india (RBI), nearly Rs 1.5 lakh crore was spent using credit cards in the past february alone. This reflects a 26% growth on an annual basis. The RBI believes that credit cards are designed for individuals to make payments to merchants, not for person-to-person transactions. The RBI has expressed reservations about such payments and speculations suggest that options like rent payments, vendor payments, and tuition fee payments through credit cards may soon be restricted.

In recent years, several fintech companies have emerged offering credit card holders the option to pay rent and society maintenance charges. For such payments, a separate escrow account is opened for the fintech credit card holder. Funds are transferred from the card to this escrow account and then transferred to the landlord's bank account. In exchange for this service, fintech companies charge a fee ranging from 1% to 3%. Platforms like red Giraffe, CRED, Housing.com, No Broker, Paytm, and Freecharge offer such facilities. There are several benefits to making rent, tuition fees, and maintenance payments through credit cards. Firstly, despite not having cash in hand, individuals are given a grace period of 50 days for such payments. Secondly, many credit card companies offer cashback and reward points, providing additional benefits to users. These reward points can also be utilized for discounts. Additionally, some companies waive the annual fee based on expenditure limits.

The RBI emphasizes that credit cards are primarily meant for person-to-merchant payments. If transactions occur between customers and entities other than merchants, the recipient will need to open a merchant account. There are significant differences between the rules and standards for both types of transactions, so adherence to them is crucial. After concerns were raised by the RBI, banks have begun efforts to curb such payments. Many banks have even stopped offering reward points for rent payments. Some banks have excluded options like rent or tuition fee payments from being eligible for fee waivers based on expenditure limits. However, it may be necessary to wait for further decisions from the RBI before any complete ban is enforced.

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