Paying rent via Credit Cards/Apps: Pros and cons!

Traditionally tenants would pay their landlords directly- either in cash or via online transfers. While this worked well, of late a new system has emerged. Many apps, even some banks and 3rd party companies have jumped into this huge house rent payment domain and are trying lure tenants into paying rent via their respective apps.
How does rent payment via Credit card work?
  • Tenant installs rental app, adds details of self and landlord
  • Tenant pays rent using credit card on the app, instead of direct transfer to landlord
  • App makes the payment to landlord (few hours to few days delay)
  • App gets the money later from bank issuing tenant's credit card
Traditional rent payment process for reference, without 3rd party apps

What is the value proposition behind paying rent via app?
  • For Tenants: 
    • Pay via credit card, so you get another 45 days to pay actual amount to your bank.
    • Auto pay facility means you don't have to remember and perform a transfer every month
    • Apps doll out some rewards/points for using their apps
    • Some apps charge an extra fee- like 1-2% that they have to pay to banks. Others don't charge any fee as of now, particularly if paid via UPI/debit cards. Tenants have to decide if this extra fee (200 Rs on 10000 Rs rent) is worth the first 3 benefits.
  • For landlords: Traditionally merchant outlets pay a small fee to credit card issuing bank to process payment- like around 2%. Right now landlords do not pay any cut as House rent apps are taking the burden (or charging the fee to tenants), probably in an attempt to boost user base. but this could change in future- once rental apps have critical mass of users and tenants are addicted to pay via app, some kind of fee will kick in either to tenant or to landlord or both.
  • For rent processing apps: There's no real business case here- Apps need to pay banks for processing credit card payments, need to wait for few weeks to get money while they need to pay immediately to landlord. But deep pocketed companies like housing.com can work without any immediate revenue. They will disrupt the market, amass user base and then figure out a way to charge a commission. On top of it apps also doll out rewards, funded by sponsors/brands who may now have access to your data.
  • Banks- no negative impact, more transactions on their credit cards. Interest income of tenant defaults on credit card payment.
Why brands are jumping to rent payment apps?
Brands have realized that it is a huge market. Let us make a back of the envelop calculation
  • Out of 140 crore Indians, let us assume average 3 people per home- that is about 45-50 crore households. Assume 30% live in rented houses= 15 crore tenants.
  • Assume an average rent of 10000 per month= 150000 crores change hands every month between tenant and landlord.
  • If apps can manage to get at least 50% tenants to pay via their app= 75000 crores turnover every month
  • If apps can manage to charge even 1% commission while facilitating this transaction: 750 crores per month
  • If apps can delay the payment by a week- interest earned on 75000 crores floating amount is about 300+ crores every month.(at 5% simple interest) 
Thus it is lots of money to be made. No wonder everyone is trying to grab a bite of this pie.

Some major players in rental app payment processing are 
What could be the possible concern?
1. Potential disputes: Earlier it was a 3 party transaction- tenant, bank and landlord (or just 2 in case of cash). Now there's one more player. If a transaction fails, if there's a delay in payment now there'll be a multi party fist fight. Apps need to put in place some SLA and proper dispute resolution mechanism. Most apps count on automated process running smoothly 100% and do not employ any customer care center- when things go wrong users will get frustrated.

2. Data risk: Now rental apps have data- of yours and your landlords. How safe it is, if it will be shared with their sponsors, what if it is breached- these risks are always there, though every app would claim they are the safest and there's no sharing of user info.

3. A possible fee in the future: If  a new party comes in, they need to make money. Right now startups might be providing this service without charging landlord. Tenants pay 1-2% towards credit card fees but do not pay any fee to rental processing app. At some point this would change. Either apps will increase time taken to pay the landlord or will charge them a fee now. Landlord will then either have to take a cut or pass it on to tenant.
Should you start using rental apps now? 
If you're ok with paying that 1-2% extra, if you value 45 days liquidity, if you value the convenience and rewards then go ahead. Have a word with your landlord before using the app. It is their data you are sharing with the app as well.

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