PhonePe, CRED may relaunch credit card rent payments: What are they and how they differ from wallet loading?

Fintech players PhonePe and CRED may soon bring back the option to pay rent using credit cards, according to a Moneycontrol report, citing sources. The companies are reportedly testing the feature with a small group of users under a marketplace-based model.

According to the report, a wider rollout could be possible as early as next month. The development could revive a payment option that had mostly disappeared from major fintech platforms after the Reserve Bank of India (RBI) in September last year raised regulatory concerns over person-to-person (P2P) transactions.

PhonePe and CRED did not respond to Moneycontrol's request for a comment on the development.

It may be recalled, in 2024, several major banks used to impose a 1% fee on such transactions. The practice also operated in a considerable grey area, as rent could be paid via credit card without the landlord's consent and without requiring the landlord to be a user of the platform to receive the money.

How do credit card rent payments work?

In a credit card rent payment transaction, a tenant may use a fintech platform to pay rent using their credit card instead of directly transferring money from their bank account. The platform charges the tenant's credit card for the rent amount, usually along with a convenience fee, and then transfers the funds to the landlord's bank account.

For the tenant, the transaction appears as a credit card payment, allowing them to defer the actual cash outflow until the card bill is due and in some cases, the person can also earn reward points. Meanwhile, the landlord received the rent in their bank account just like a regular bank transfer.

Though major fintech platforms such as PhonePe, PayTm, Amazon Pay and others stopped accepting rent payments through credit cards, some resumed the service by adding more know-your-customer (KYC) and compliance process to users, Moneycontrol said in a news report.

Meanwhile, in April and May, respectively, ICICI Bank and SBI Card, the country's second- and third-largest credit card issuers, stopped offering reward points on rent payments.

How is this process different from wallet loading?

When you are using credit card rent payment, the money is used for a specific purpose which is paying rent to a landlord. Like discussed earlier, in this case the fintech platform processes the payment and transfers the funds directly to the landlord's bank account.

Wallet loading is an entirely different feature. In this case, an user adds money to a prepaid digital wallet using a credit card or money from a bank account and can later use those funds for different purposes such as bill payments, purchases and transfers. This essentially allows you to make transactions without needing to re-enter your bank details again every time.

In short, rent payments are purpose-specific transactions which are routed to a landlord, while wallet loading involves adding money to a wallet that can be spent for various things and not restricted to just one purpose.

However this segment has faced regulatory scrutiny in the past. In 2022, the central bank said that prepaid payment instruments (PPIs) such as digital wallets, gift cards and prepaid cards should not be loaded using credit lines from non-bank lenders, sending the wallet and buy-now-pay-later industry into confusion, Mint reported at the time.

“RBI's June 2022 clarification remains in force. The regulator stated that PPIs cannot be loaded through credit lines, effectively ending many BNPL structures that relied on NBFC-backed credit lines. RBI has not issued any broad reversal of this restriction,” said Ishan Tanna, Senior Associate at Ashika Capital.

When asked whether PPIs are allowed to be loaded using credit lines from major banks, Tanna noted that the position on bank-issued credit lines is less explicit.

“RBI has not provided a general permission allowing PPIs to be loaded through revolving bank credit lines, nor has it created a broad exemption from the 2022 clarification. As a result, the industry has generally taken a cautious approach, while credit cards continue to operate under a separate regulatory framework,” he added.