Sikander, a road side tea vendor, retires home every night by dropping by at the grocery store near his house in Noida’s Sector 142. He picks up a couple of eggs and a small packet of biscuits. Once in three days, he carries home a kilo of rice, and sometimes a small pack of soya chunks, all paid in cash.
Given a choice, he would rather stock up for the entire month or a week. Bulk buying would fetch him a good bargain. After all, five kilos of rice bought in a single pack is cheaper than buying one kilo each on five different occasions. The same economies of scale buying applies to other items as well — from eggs to biscuits to oil to pulses — that could result in neat savings of over a few hundred rupees in a month.
Only if Sikander had the means to pay the grocer upfront. Until he was confined to his home since the country went into a lockdown to contain COVID-19’s spread, he used to hawk tea to his patrons in cash. Every day he set aside some money to pay for his daily needs. The drill would play out every day.
The grocer, despite his familiarity with Sikander’s buying patterns, would not give out goods on credit, fearing default. There are others, though, who buy on a promise to pay later. These are digitally savvy customers who swipe their credit cards, in a transaction that their banks seamlessly intermediate between them and the grocer.
The Indian payment landscape
If one were to draw a graph of Indians’ financial spending pattern based on people’s income, it could well resemble that of an elongated arm chair. Anecdotal evidence would suggest that people with greater cash-based earnings will have a higher propensity to pay for grocery in cash than through digital payment modes.
This is one peculiarity of the Indian payment landscape that Facebook’s decision to invest Rs 43,574 crore for a 9.99 percent stake in Jio could well change, dismantling barriers for customers such as Sikander to make micro payments through legitimate financial credit system.
India’s payments landscape is at a point of inflection, aided by rapid smartphone penetration and millions who are joining the swelling ranks of middle class. Increasing “uberisation” of user experience and integration in both online and offline spaces, some of these service providers can become the instrument of choice for small payments.
With intense competition and strategic collaboration among market participants lowering the costs of banking and underserved and unbanked consumers beginning to find utility in formal financial services, the opportunity will be immense.
The Reliance Jio-Facebook alliance gives an opportunity to the global social media giant to marry technology with fintech strategies in spawning a market for digitally delivered micro loans in under-penetrated segments, where the volume can be multiple times bigger than the formal traditional bank loan market.
The aggregation of traders through the WhatAapp-JioMart network will offer fintech companies to come out with new business models and product designs and delivery to cater to changing spending habits.
One of the attendant causes of India’s booming consumer durables market has been the evolution of the consumer finance market India. Of the many schemes that have progressed to finance these purchases, interest-free schemes are the most popular: they currently account for about three-fourths of total consumer durable financing.
Read our extensive coverage of the Facebook-Jio deal here
A hybrid aggregation of India’s neighbourhood kirana stores such as those through the JioMart-Whatsapp/Facebook platforms offers a typical opportunity for the emergence of a new class of fintech companies to replicate the success of consumer durables financing schemes in micro and hyper-local shopping.
Consumers such as Sikander may find such schemes convenient — available at the points of sale — and attractive as they may have to bear very little interest burden while making purchases, yet bring relatively higher value consumer products within their reach.
Financing schemes enable customers, especially those with lower income levels, to use future income streams to buy consumer products upfront and pay in micro instalments over a period.
The beneficiaries will be not just customers – lenders, manufacturers, and retailers too could benefit. At a theoretical level, manufacturers gain from the resultant boost to sales and increased consumer preference towards high-margin products. For retailers, footfalls go up, whereas an increase in the customer base helps lenders to cross-sell loan (personal loans, insurance, etc) products to consumers availing of loans for daily use domestic essentials.
For small informal borrower such as Sikander, a formal, tenured loan from a finance company is also a ticket to a world of financial services. Besides freeing them from the clutches of private loan sharks, it will also give them a “credit score” that vouches for their credit worthiness, a necessity for bank loans.
If implemented efficiently within the regulatory realms, technology, fintech strategies and a pooled community approach can create an optimal ecosystem that can wed the objectives of financial inclusion with retailers’ business expansion goals.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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