Just yesterday, Paytm had officially announced that it would levy a 2% fee for customers who recharge their wallets through their credit cards. The company justified the charge, stating, a loophole in its zero-fee transfer process was discovered by some financially savvy users who exploited this model to rotate money. The company witnessed a disturbing trend when many users started funding their Paytm wallet with their credit cards and transferring it to the bank for free. They were not only getting free loyalty points which effectively is free cash but also getting access to free credit.

However, today the company has decided to roll back the decision and has made a new announcement on its official blog. It states, “With an intent to prevent the misuse of transfer to bank facility at 0%, we had applied a refundable fee of 2% on add-money through credit cards. At the same time, we are conscious that this move caused inconvenience to a large segment of our users, including those who are using their credit card for genuine transactions. Keeping the millions of customers and merchants interest as utmost priority, we have decided to suspend the 2% fees and will continue to build a series of features to curb such misuse.”

The 2% charge was being levied as Paytm pays a fee to card networks or banks whenever its customers use any payment instrument, like any other online commerce company. Paytm pays a hefty charges when users use a credit card to card networks & issuing banks. If a user adds money and takes it to his bank, paytm loses money. Their revenue model requires users to spend money within the network and the company makes money from the margins available on various products/services offered.