The majority of credit card users suffer from lower rewards as a result of some misconduct

 The majority of credit card users suffer from lower rewards as a result of some misconduct

The majority of credit card users suffer from lower rewards as a result of some misconduct

It is not permitted to use credit cards to make purchases in order to maximize rewards points and other advantages. As a result, banks have begun to remove payments for things like rent, insurance, and utility bills off their lists of items that earn rewards points.

Important categories including rent payments, insurance premiums, and utility bills have started to disappear from the lists of credit card issuers' categories that receive points.

In India, credit cards were not widely used until recently. Nonetheless, credit card payments have grown in importance as India becomes a digital payments powerhouse.

By October 2023, credit card companies in India had issued around 95 million credit cards. Even though this market has expanded quickly over the years, just 6% of Indians today have access to credit cards.

This is a section with a ton of untapped potential. People use credit cards in the age of digital payments not just as easy ways to make purchases but also as a way to earn reward points and take advantage of special offers.

Many credit card issuers have begun to remove crucial categories from their lists of reward-earning categories in recent months, including rent payments, insurance, and utility bills. However, why are banks concentrating on these areas? Let's attempt to discover the solution.

When used wisely, credit cards may be an effective financial tool. By using their regular expenses to purchase necessities, users may accumulate substantial sums of cashback, reward points, gift cards, and airline miles. However, some people abuse credit cards severely, which leads banks to exclude several significant categories from their lists of categories that receive rewards.

Here are some examples to help you better comprehend the situation:

payment of utility bills

One common practice among company owners is to pay their workplace utility bills using personal credit cards. Office expenses are significantly more than household utility costs, sometimes totaling thousands of rupees. But according to the bank's rules and regulations, using personal credit cards to pay company power payments is not permitted.

B. A lot of individuals use internet cafés in small towns to pay their utility bills online. Some proprietors of cybercafés pay for other people's utility bills using their own credit cards in order to get points. This technique is also prohibited, however.

C. There is an additional problem with some apps/websites that allow you to use credit cards to pay your suppliers and pay GST for your company. A lot of individuals take advantage of the seller payment option by using their credit cards to send money to friends' and family members' bank accounts, who then send the same amount back to the original seller.

The primary issue here is that the bank interprets all payments made via these apps as utility payments even if they are not as they utilize the same MCC (Merchant Category Code) for utility payments.

payment for insurance

Many insurance brokers pay their customers' insurance premiums using their own credit cards.

There are some that engage in advanced credit card gaming. They buy expensive insurance plans only to fulfill credit card requirements and get incentives. They then cancel the insurance coverage and get their money back in their bank account within the free-look cancellation period.

payment of rent

Paying fictitious fares to relatives or friends using internet sites that permit such transactions without a formal fare agreement is a popular method of cashing out credit card limitations.

Due to the fact that users of these websites paid tickets to friends and family, banks were forced to apply a premium for these payments in addition to removing the fares from their list of rewards. It is noteworthy that those who make fake fare payments may also face repercussions.

Even while credit card devaluation—the gradual decline of credit card benefits—is a necessary component of the credit card lifecycle, these actions merely hasten the process. Since certain professional organizations have abused credit cards, legitimate credit card users are disproportionately affected.

Instead of eliminating a whole category from the list of categories that receive points, credit card issuers can adopt a more forgiving stance and impose limitations on certain categories. Banks have the authority to impose a monthly cap of Rs 50,000 on utility payments, up to which consumers may get incentives. Dealing with abuse may be more successful with this strategy.

The Reserve Bank of India must also give careful consideration to the manner in which banks and payment gateway providers distribute MCC to retailers.

Even if they are completely engaged in different sorts of business, many merchants employ point-of-sale devices with a separate category MCC in order to avoid paying merchant discount rate costs. Credit card holders are thus unable to accrue rewards points at the pace that is appropriate for that category, even if they may do so at an expedited rate.

A POS system with Kirana MCC could be owned by a businessman who operates a travel agency. After that, whenever a customer uses the credit card at this travel agency, they will earn rewards points at the rate that applies to grocery purchases rather than airfare.

Before granting MCC to businesses, banks and other payment gateway providers must to carry out extensive vetting.