The positive result of the several alliances formed between online marketplaces, digital financial firms, payment gateway partners and banks in the past year is out in open. Not just sellers, but customers are in line too to reap benefits.
Ecommerce companies such as Snapdeal, Paytm will now enable customers to avail loan-EMI facilities, even those who don’t have credit cards. How? Non-traditional data i.e. the customer’s online purchase & payment history will be analysed to determine his/her credit score. Those with favourable score will be able buy things on EMI without credit card.
Amit Lakhotia, Senior Vice President, Paytm said in his interview to ETRetail, “EMIs will be restricted to high ticket price categories, for example on purchase of white goods, etc. In the instance when a customer does not have a previous credit history, we will evaluate their mobile phone bill payment for credit worthiness. We will only share the rating with banks and the user will be informed of the process.”
Traditional data to calculate one’s credit score mostly consists of scrutinising payment history, credit cards payment pattern, loans’ length & frequency, new credit accounts or credit inquiries made and similar things. But in this case, online retailers believe that using non-traditional data will attract more buyers. Particularly from the age group of 22- 28 years, who don’t necessarily have traditional credit graph.
Explaining the concept further, Tejasvi Mohanram, founder and CEO of RupeePower (in which Snapdeal has majority stake) said, “We are utilising non-traditional data to match the right customer to the lending agency. We will analyse the credit history of an individual when they ask for a loan or EMI. It will be used by banks as a back-test where they will match traditional credit scores with the learnings from non-traditional data.”
Clearing the air about concerns with respect to customer data and privacy, Jitendra Gupta, founder of Citrus Payment Solutions said, “We will only tell the bank whether the customer is eligible or ineligible for the loan. Disclosing credit score will be unethical.”
In countries like US, China and Europe, similar online credit plans have been introduced in the past. Alibaba had started Virtual Credit Card service which was later banned by the country’s central bank. Amazon’s ‘Bill Me Later’ service in the US too has been embroiled in controversy. Needless to say for such financial products to work effectively in India, etailers and digital financial firms will have to be careful and play by the rules.