Bengaluru: India’s largest e-commerce Flipkart Ltd has started offering customers an option to pay via monthly instalments without charging them interest as it seeks to boost the sales of higher-priced products such as premium smartphones, televisions, home appliances and other electronics.
Flipkart tied up with lender Bajaj Finserv Ltd and electronics brands to launch the consumer finance product earlier this month. Customers can buy electronic products costing more than Rs.5,000 and pay in equal monthly instalments (EMIs) over three, six or nine months. Flipkart isn’t charging any fees, interest or asking for down payments from customers.
“According to our surveys, consumers are willing to pay more over time for essential things,” said Surojit Chatterjee, senior vice-president, product, Flipkart. “And in this case, it’s not credit as such because there are no fees or interest. In the three weeks that we’ve launched the no-cost EMIs, we’ve seen customers have upgraded their purchases because of it. We’re thinking of affordability as an overall problem to solve. We will come at this problem from different angles.”
The launch of the interest-free EMIs comes as Flipkart is trying to turn around its business, rev up sales growth and stem market share losses to Amazon.
For e-commerce firms, increasing sales of high-priced products such as TVs, refrigerators and washing machines is crucial.
Yet, until now, the online sales of these products haven’t picked up in a big way, partly because of a lack of payment options for customers. The other main reason for the limited growth of digital products is the poor reach and quality of the supply-chain network of e-commerce firms. (Flipkart and Amazon have made strides in improving on this front.)
In late 2013, the Reserve Bank of India banned banks from offering interest-free EMIs to credit card-holders, saying these schemes violated its lending regulations, in a move that affected the sales of higher-priced products at online retailers. This time, Flipkart is offering customers the option of paying through debit cards, credit cards and other digital payment methods.
In March, the government banned e-commerce firms from influencing product prices, even as it allowed foreign direct investment in online marketplaces. There is a lack of clarity on whether the rules cover offerings such as EMIs and so-called cash back schemes.
When asked if Flipkart’s interest-free EMI scheme violates norms, Chatterjee said: “We’ve talked to legal experts and regulators, and this already happens in the offline world. We’ve done our due diligence appropriately before launching.”
Once a customer buys a product on Flipkart, Bajaj Finserv will take up the task of collecting the payments. All the three parties—Flipkart, Bajaj and the electronics brand—will share the cost of offering the EMIs, Chatterjee said.
Chatterjee has set up a digital products team that is working on launching more offerings such as the interest-free EMIs.
That team also introduced a scheme for customers to exchange their old mobile phones for new ones on Flipkart.
“We think of customer experience from an end-to-end perspective. When a customer is buying a phone or a home appliance, they also want to buy (phone) connections, warranties and other things that can be done digitally. So, we’re looking at how we can give customers an end-to-end experience on Flipkart so that they don’t have to go elsewhere. We’ll launch more digital products to make the end-to-experience better and make products more affordable,” Chatterjee said.
“EMIs help push demand for high ASP (average selling price) goods,” said Harish H.V., partner, Grant Thornton. “Schemes like zero-interest help persuade consumers to up-trade and even get a new bunch of customers at certain price points. People feel more comfortable buying high-value items on credit.”