- Paytm found that some credit card users were abusing that 0-fee transfers
- To combat this, Paytm is charging all CC deposits a 2% transfer fee
- It is refunding this money in the form of a coupon you can use on Paytm
On Wednesday, wallet company Paytm announced that it will be charging a 2 percent deposit fee from credit card users going forward. According to Paytm, this was being done to combat misuse of its zero-fee transfers, explaining that savvy users were rotating their cash through the wallet to earn essentially “free” money in the form of reward points. Paytm said that to ensure that genuine users don’t lose money, it will return the 2 percent charge in the form of coupons that can be used on Paytm.
Later, its founder Vijay Shekhar Sharma clarified that the coupons can also be used on third-party sites to pay Swiggy or Uber, although this mechanism has not been activated yet.
As noted in the post announcing this decision, since November, Paytm has been allowing users to take cash out of the wallet to their bank accounts at no charge. Typically, cashing out has attracted a fee from wallets. At the same time, Paytm and other wallets haven’t charged fees for depositing cash into their systems. This meant that credit card users could fill up their Paytm wallets using the card, then transfer that money back to their bank accounts, at no charge. “They were not only getting free loyalty points which effectively is free cash but also getting access to free credit,” Paytm noted.
This would be subsidised by Paytm’s own costs, as the company pointed out.
Incidentally, Paytm pays fee to card networks or banks whenever you use any payment instrument like any other online commerce company. Paytm pays a hefty charges when you use your credit card to card networks and issuing banks. If user simply adds money and takes to bank, we lose money. Our revenue model requires users to spend money within our network and we make money from the margins available to us on various products/services we offer.
For this reason, Paytm is now charging a 2 percent deposit fee from credit card users, and refunding them the same in the form of a coupon that can be used on the Paytm app. As we mentioned, on Twitter, Sharma has clarified that the coupons can work on third-party sites as well, and added that you will be able to use these with apps such as Swiggy, Uber, although the FAQ on the page currently still states that it can only be used on the Paytm app.
The coupons can also be used for bill payments, recharges, and so on, these are not limited to shopping on Paytm Mall. The vouchers will expire on December 31, 2017, but the FAQ mentions that this can be extended on request.
These charges are only being applied on credit card users, so if you’re using a debit card, net banking, or UPI/ IMPS payments, then you are not affected by this move.
Disclosure: Paytm’s parent company One97 is an investor in Gadgets 360.