The Reserve Bank of India’s (RBI) tighter payment aggregator guidelines have led major fintech players like PhonePe, Paytm and Cred to discontinue rent payment services on their apps.

This is a setback for payment aggregators (PAs) as it had become a source for rent payments from credit cards routed through their platforms. It was a high-volume business and a revenue generator for fintechs as users took to this route to pay rent and earn rewards besides getting an interest-free credit period.

The ban was triggered by RBI’s 15 September circular which restricted PAs from processing transactions for entities without direct contracts. This impacts rent payments hardest, since landlords mostly aren’t registered merchants with complete KYC verification.

As per the circular, PAs can only settle funds for merchants with whom they have contractual agreements. This in effect means that fintechs can’t carry out marketplace business. Landlords can’t thus be onboarded without merchant-level verification.

Some banks had already tightened rules on rent payments through this route even before the RBI came out with the new circular. In June, HDFC Bank introduced a 1% fee capped at Rs 3,000 per transaction on rent payments made using credit cards through fintech apps.

In March and April, ICICI Bank and SBI Cards stopped offering reward points on rent transactions.

Since March 2024, fintechs such as PhonePe, Paytm, Mobikwik, Freecharge and Amazon Pay suspended credit card-based rent payments.

Though some fintechs continued with the system by adding more KYC and compliance process to users, it has now been discontinued after the RBI’s circular on 15 September.

The practice had become popular as fintechs could charge a convenience fee and boost card spends. But it raised regulatory concerns around KYC compliance and potential misuse.

Tenants will no longer be able to use these apps to pay their rents through credit cards. But to make rent payments they can still use UPI transfers or do it through NEFT, RTGS or IMPS via banks.