Customers are increasingly opting for equated monthly instalment (EMI) options while shopping for furniture online, resulting in a 5-8% rise in EMI payments in the year ended 31 March from a year earlier, according to several top company executives.
Around 12-15% of overall transactions across online furniture brands such as Pepperfry, Urban Ladder, and on refurbished marketplace Zefo are now paid in EMIs. Furniture brands tie up directly with non-banking financial companies (NBFCs), banks and lenders for credit scoring, while collection of loans is processed directly by the lending partner.
“EMI purchases in FY19 accounted for 19% of our sales, up 3% compared to FY18 and up by 8% over a two-year period," said Ambareesh Murty, chief executive of Pepperfry.
Experts say the availability of debit card-based lending coupled with growth in mobile Internet and availability of a wide variety of consumer behaviour data have primarily led to the sharp rise in EMI purchases across furniture portals. Debit card-based EMI purchases are treated as consumer durable loans, deductible from the customer’s bank accounts using auto re-payment mechanism.
EMI purchases accounted for less that 10% of overall purchases in FY17 and FY18 for online furniture brands when they used to offer these schemes using credit cards. But as e-commerce firms like Flipkart and Amazon started offering EMIs on debit cards, furniture brands also turned to non-credit card-based EMI options.
Zefo, an online marketplace for refurbished home appliances and furniture, confirmed it has witnessed an increase in card-less EMI options. “The (EMI transaction) numbers have gone up from around 10% last year to around 15% this year," said Rohit Ramasubramanian, co-founder of Zefo. Card-less EMI service providers also recollect their loans via an auto debit facility directly from a user’s bank account.
Online furniture seller Urban Ladder, which is anticipating around ₹400 crore revenue for FY20, corroborated it has seen an uptake in EMI transactions.
The company’s chief executive Ashish Goel said that as the average age of customers get younger, he or she is more likely to opt for EMIs.
“Our core customers thus far have been at a mature life-stage, perhaps living in their second homes, and hence do not seek EMI financing as an option. However, as the average age of our customer grows younger, we will have to be cognizant of their spending patterns, and perhaps provide deeper, more integrated EMI financing options," Goel said.
Apart from targeting millennial customers, brands say that EMIs also allows customers to purchase higher-quality products, when they may not be able to afford one, and also helps increase the average order values.
Murty said Pepperfry has lending partnerships with home loan lenders such as Housing Development Finance Corp. Ltd, Indiabulls, and Bank Bazaar to offer EMI loans to customers planning to make bulk purchases at its offline stores as well.
“EMI Options therefore typically result in an increase in the average order value," he added.
However, policy and fintech experts have raised red flags over the quality and accuracy of consumer behaviour data that NBFCs and lenders use for underwriting EMI loans.
“What we are seeing finally is consumer data becoming more actionable than underwriting using a customer’s credit spending history. This isn’t necessarily a bad strategy, but there are some problems," said a policy expert who consults with fintech companies and banks. Not wishing to be named, he pointed out that personal information such as salary and income details, credit repayment history, and even the number of cars one owns and the make and model of the car can be considered while underwriting an EMI loan.