Digital payments firm Paytm on Wednesday announced that it will charge a 2 percent deposit fee from users who top up their Paytm Wallet using credit cards. 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 its platform.
Later, Paytm 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. Uber in a tweet said no additional charges will be levied for adding money in Paytm Wallet from the Uber app.
There are a couple of other caveats listed on the FAQ page. For one, these refund coupons will only be given when the amount you're filling up is more than Rs. 250. If your transaction is lower than that, you will not get a coupon. Also, you will get a fresh coupon every time you top-up Paytm using a credit card, these coupons can not be clubbed, and have to be applied manually and individually. Also, these coupons can only be used in a single transaction. Also, the coupon isn't applied as a discount on the transaction - it gives you an instant cashback to your Paytm wallet.
The coupons can also be used for bill payments, recharges, and so on, as 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.
Paytm is applying these charges only on wallet recharges done using credit cards, 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.