Flipkart now offers no-cost EMI, but how viable are the financing options for e-buyers?

In a first for e-commerce in India, Flipkart has introduced Equated Monthly Installments (EMIs) with no interest for its buyers on products of ticket sizes of Rs 5,000 and above. Flipkart claims that the ‘No-Cost-EMI’ entails zero processing fee, zero down payment, and zero interest for customers.

They have partnered with Bajaj Finserv to create this offer, which is available on select products like electronics, home appliances, and mobile phones for now. The offering comes with loan tenures starting at three months up to 12 months.

In a statement, Mayank Jain, Senior Director and Head of Digital & Consumer Financial services, Flipkart, says, “Less than one percent of Indians have access to credit cards, and the traditional banking industry has been slow in addressing the need for small personal loans. This is the first step towards making shopping truly affordable for masses online and brands have shown great enthusiasm to collaborate with us. This has the potential to disrupt online shopping just like we did with Cash on Delivery a few years ago.”

The move throws light on the many financing options that are developing for online buyers in India. From discounts and cashbacks to instant loans and no EMIs, e-commerce players are leaving no stone unturned to build customer loyalty and retention.

Developments in the industry

As much as the credit card companies’ sales executives try, statistics say that in a country of 1.2 billion people, there are only 22.74 million credit card users. In 2014, Reserve Bank of India banned banks from providing zero-interest EMIs stating lack of transparency with hidden service charges and processing fees. The online retailers are not collaborating with banks, but with non-banking finance companies (NBFCs) such as Bajaj Finserv.

A survey conducted by Hitachi Capital Consumer Finance found that for 83 percent e-buyers, financing offers strongly influence their decision to buy. Enabling the customer with attractive and on-demand options is key. For instance, credit rating agency CIBIL (Credit Information Bureau India Limited) maintains credit scores for online buyers just as they do for clients of banks and non-banking financial institutions. This helps e-commerce platforms know their buyers’ credit histories, which will expedite their strategy for payment on an installment basis. Other strategies include:

1. Third-party payment platforms like Zestmoney partner with e-commerce companies to enable financing at check-out, by providing instant EMIs to customers. They claim that it helps customer conversion, gets higher ticket sizes, and reduces cash collection cycles. Similarly, CashCare Technology Pvt Ltd lets the customers pay for purchases from (their partner) e-tailers over 3-12-month EMIs. With the help of data from CIBIL, CashCare informs the customers of their loan eligibility within five minutes.
2. Paytm’s payment bank system is awaited with much anticipation. The payments-cum-e-commerce platform claims that account holders will get more interest from them than from a savings bank. The model is expected to earn customer loyalty as a credit card or debit card does not offer the same. Backed by Alibaba [among others], and valued at $2.8 billion, Paytm is expecting the payment bank arm to be their second-biggest revenue source. CEO Vijay Shekhar Sharma, on whose name the license has been granted by the RBI, has said that initial investment is $300 million.
3. Cashback offers are also believed to help customer retention. A buyer has multiple platforms for discounts. But in cashback, the platform is offering an extra incentive besides discounts. They refund a part of the paid amount into the buyer’s wallet, which can be used again on the same platform. Players like [Times Internet-owned] Coupon Dunia, Kalaari Capital-backed Cash Karo, and coupon aggregators like Voodoo are exploiting the coupons’ market as well, backed by massive funding and a large customer base. In fact, Crownit, an app which discovers local deals and cash back offers, has raised $9.5 million from investors including Helion Ventures and Accel Partners, and boasts of 8 lakh customers and Rs 1.5 crore monthly sale. Voodoo is an app-only digital assistant that provides coupons and discount codes through a floating bubble while the user is inside a particular app.

With the e-commerce market in the country expected to reach $38 billion by 2020, it is essential that customers be offered the easiest and most transparent ways to transact online. Wishing for a cashless economy and cutting down CoD costs, e-commerce majors are encouraging online payments. Flipkart’s competitor Snapdeal had also started a similar initiative recently, by collaborating with HDFC Bank Ltd. to launch a co-branded credit card in partnership with Visa, and encourage more customers from tier 2 and 3 markets to adapt to digital payments. Enabling customers to buy more services, online coupons, instant loans, and payment banks is a move in the right direction.

Is anybody else wondering when the RBI is coming up with another hurdle against these efforts?