PhonePe, Paytm, Cred shut down rent payment services amid RBI curbs

India’s largest fintech players including PhonePe, Paytm, and Cred have discontinued rent payment services on their apps, a category that had become one of the fastest-growing use cases for credit card payments in recent years.

What triggered the move?

The move follows the Reserve Bank of India’s (RBI) tightened Payment Aggregator (PA) and Payment Gateway (PG) guidelines, issued on September 15, which bar PAs from facilitating payments to entities with whom they lack a direct contractual relationship.

"A PA shall aggregate funds only for the merchant with whom it has contractual relationship. PA business shall not carry out marketplace business," the circular said.

In effect, this impacts rent payments routed via fintech apps, where the landlord often isn’t an onboarded merchant with full KYC.

PhonePe, Cred and Paytm did not respond to Moneycontrol's queries.

How significant was this business?

Industry sources aware of the development told Moneycontrol that rent payments had become a large-volume business with significant topline impact for fintechs, as users relied on credit cards to pay rent and earn rewards.

But the new rules mandate that funds can only be settled into merchants’ bank accounts post due diligence and prohibit PAs from acting as marketplaces, a structure under which rent payments were earlier processed.

“Rent was basically happening because PA-PG was acting as a marketplace for landlords without merchant KYC,” said another industry source . “That’s no longer permitted under RBI’s updated framework.”

What happened last year?

On June 26, country's largest private sector lender HDFC Bank in an email to its credit card customers said that rent payments made using credit cards through fintech apps will attract a 1 percent fee up to Rs 3,000 per transaction.

In March and April, ICICI Bank and SBI Cards, the next two biggest credit card issuers had stopped reward points for rent payments.

Since March 2024, fintechs such as PhonePe, Paytm, Mobikwik, Freecharge and Amazon Pay have stopped accepting rent payments through credit cards.

However, some resumed by adding more KYC and compliance process to users.
The turn of events has been precipitated by the huge rise in rent payments using credit cards.

While RBI did not officially ask banks to stop rent payments last year, the regulator's concern regarding cards being used for peer-to-peer payments continued.

What's changed now?

Now, in its new circular sent out on 15 September, RBI explicitly mentions "A PA shall ensure that a marketplace onboarded by it does not accept payments for a seller not onboarded on to the marketplace’s platform"

While the category had been lucrative, with fintechs charging a convenience fee and boosting card spends, it also raised regulatory concerns around KYC compliance and potential misuse.

Impact for users.

For now, users will no longer be able to use these apps to route their monthly house rent through credit cards, forcing them back to traditional bank transfers or cheque payments.