The
chief inspiration for today’s blog Post is the Star Trek Quote – “Space - Where
no man has gone before"
The
eCommerce arena in India is witnessing an explosive growth with the pool of
Online Shoppers increasing every minute.
This
Forbes
article reflects the trend.
One
of the main reasons as to why shoppers still prefer mom and pop retail stores
is the informal overdraft facility.
Any
reasonable sized mom and pop store offers overdraft facilities ranging from INR
250\-to INR5000\-.
These
overdraft facilities are offered without any security and are based on trust.
The
default levels of such overdraft are very low.
Today’s
post explores the market and the process flow for introducing Overdraft
facility for online shoppers.
Q: What is an Ovedraft?
Ans: Overdraft is an Loan arrangement under which a
bank extends credit up to a maximum amount (called overdraft limit) against
which the account holder can write checks or make withdrawals. An overdraft is
a type of revolving loan where deposits (credits) are available for
re-borrowing, and interest is charged only on the daily overdraft (debit)
balance.
The most famous overdraft facility
in India is the PMJDY
Overdraft facility.
Q: How different is from EMI
financing?
|
Sr
No
|
Overdraft
|
EMI
Loan
|
|
01)
|
This
is like a revolving credit. There can be Debits (Withdrawals) and Deposits
(Credits) in the account. Debits (Withdrawals) can be made upto the set
limit.
|
Single
Debits (Withdrawal), multiple credits
|
|
02)
|
Interest
is charged on the daily withdrawal outstanding at the end of every month.
|
Interest
is collected along with part of the Principal every month.
|
|
03)
|
Petty
shopkeepers or Wholesale shopkeepers offer informal overdraft facilities. The
interest portion is built into the selling price.
|
EMI
Loans are offered by Banks or financial institutions.
|
Q) What are the finance options available
to Online Shoppers in India?
Ans: The most common finance
options in India to Online Shoppers are the EMI loans from the Credit Card
Companies.
These EMI options are available
only for the respective credit card holders only. New online shoppers cannot
avail the EMI options.
Check out on this Google Search
for more information on EMI
Options.
No Finance Company in India
offers Overdraft facilities, more so for online shoppers.
A couple of finance companies do
offer EMI loans to online shoppers. Check out here for
one such tie up between an eCommerce Company and a Finance Company.
This tie-up is a mix of online
and offline model.
It is not a full fledged online
model.
The following is a full-fledged
model.
01) Customer
profiles are created based on eKYC and allot unique customer codes.
02)
Fix overdraft limits as per risk profile of the customers.
03)
Obtain NACH (Debit) mandate for recovery of the
monthly interest. The upper limit can be fixed as per the Overdraft Limit of
the customer.
04)
Tie up with eCommerce companies wherein the
customers can interact with the finance company to finance his/her purchases
till the eligible limit.
05)
Raise alarm when the NACH(Debit) transaction is returned
with any reason; financial or non-financial reason.
This Model is most suitable for Finance
Companies, though Banks can also consider adopting it.
This model has the following
benefits:-
a) Increase
the pool of new customers for eCommerce companies.
b) Increase
the pool of new customers for Finance companies.
c) Encourage
online customers to build a positive credit report.
d) Encourage
Digital India Transactions.
e) Introduce
advanced fraudulent detection techniques.
f) Introduce
new earning streams for eCommerce/Logistics personnel.
g) eCommerce
companies need not invest for finance.
h) The
processing charges, if any, can be paid by the eCommerce companies if the purchases
are beyond a specified level.
Check out this Google search
results for the various contours of ecommerce
in India
