This festive season a large number of Indians have opted for EMI payments for their consumption purchases, say industry insiders. While one reason is consumers opting to save cash, another could be that many traditional lenders have slowed their credit lines but gone big on EMIs on debit and credit cards, they explained.
Multiple payment and lending platforms Moneycontrol spoke to pointed out that this year there was a definite surge in both zero-cost EMI payments as well as those that have an interest component. Brands have also been aggressive in pushing zero-cost EMIs as they scramble to clear inventory stuck during the lockdown months.
A barometer of economic health
In a situation where there is an overall slowdown in the economy, if consumption trends pick up, bankers point out that it could bode well for the country and help the economy recover faster.
“EMI volumes on our merchant base have jumped 134 percent compared to last year. We have also interestingly seen a higher share of EMI transactions out of the total transactions compared to last year,” said Rajeev Agrawal, Chief Executive Officer, Innoviti Payments, which deploys PoS terminals at large merchant outlets.
Lenders and brands work closely with these payment companies to enable normal card payments to get converted into EMI transactions. Agrawal pointed out that a large number of banks were offering EMIs on debit cards this year, which could have resulted in this surge.
Another large PoS player extremely active in this space is Pine Labs. Recently, the company tied up with multiple smartphone brands, including Samsung, Apple, Vivo and Oppo, along with banks and NBFCs to process EMI transactions for consumers.
The company had said that in the second quarter of this year, it had reported a 49 percent increase in EMI transactions compared to pre-Covid numbers.
For Pune-based EarlySalary, which offers credit lines to consumers, there has been a definite jump in credit demand for shopping. Akshay Mehrotra, co-founder of EarlySalary, said that shopping as a category has gone up from October 26. Skill enhancement has also been an interesting category, he said.
Bengaluru-based lending platform ZestMoney saw its EMI transactions double from last year. Overall, the lender is at almost 80 percent of its pre-Covid business numbers, which indicates that consumers have started looking for financing options to make purchases.
“We can sign up customers digitally through eKYC and we cater to customers who are new to credit. This has helped us scale up our numbers aggressively and reach out to customers without a credit card,” said Lizzie Chapman, co-founder, ZestMoney.
Starting its business with online platforms by offering options to convert purchases into EMIs, ZestMoney has now ventured into offline retail as well and the business is growing fast, she said. Having started late last year, she hopes to get 30 percent of total revenue from the offline business by the end of 2020.
Besides consumption purchases, EMI payment as an option has picked up in other sectors such as edtech and electronics as well, and ZestMoney is also doing some initial business in the electric-bike category, which is becoming popular among small-town consumers across the country.
Why ‘pay later’ schemes are popular
Easy credit availability is the bedrock for rapid economic growth. But India has just around 55 million credit cards, owned by around 35 million consumers, according to industry estimates. Non-banks are not allowed to issue cards of their own, hence EMI payments or ‘buy now, pay later’ schemes are good business options to process credit for consumers.
“People’s buying tendencies have moved from aspirational to need-based — something as basic as getting a smartphone for the kid, in today’s era of online schools, that is a need and not aspirational,” said Agrawal of Innoviti Payments.
Consumers who have gone to their home towns are also looking to buy essential products to help their parents, like washing machines or a new television set. These behaviour tendencies have given rise to curious consumption trends beyond the metro cities.
However, lending continues to be a stressful business since Covid-19 has thrown almost every lending statistical model into a tizzy. With incomes getting disrupted and business slowing down, repayments continue to be erratic among certain segments of borrowers.
Chapman said that ZestMoney has been getting strong repayments since the moratorium ended and that has been driving its comfort while lending to new customers. Even Mehrotra said that having stuck only to salaried consumers, EarlySalary has seen strong repayments by its borrower base, which has encouraged lending to new players.