Monthly Archives: March 2016

Govt defines e-commerce marketplace rules, allows 100% FDI

DIPP has also come out with the definition of e-commerce, inventory-based model and marketplace model

The government notification on e-commerce models is expected to redefine the way online retail is done in India. Photo: iStockphoto

New Delhi: The government on Tuesday allowed 100% foreign direct investment (FDI) in online retail of goods and services under the so-called “marketplace model” through the automatic route, seeking to legitimize existing businesses of e-commerce companies operating in India.

It also notified new rules which could potentially end the discount wars, much to the disappointment of consumers. This is because the rules now prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%.

This could, however, level the playing field with offline stores, which have witnessed a slump in footfalls corresponding to the increase in e-commerce.

So far, India has allowed 100% foreign investment in business-to-business (B2B) e-commerce but none in retail e-commerce—i.e., business-to-consumer, or B2C.

Even so, Indian e-commerce companies such as Flipkart and Snapdeal have been following the marketplace model—which was not defined—and attracting large foreign investments. Marketplaces essentially act as a platform connecting sellers and buyers.

This has led to allegations from time to time by brick-and-mortar stores that Indian e-commerce companies were flouting existing policy norms to gain an unfair advantage, given that the government does not allow FDI in multi-brand retail companies.

It led to a legal challenge in the Delhi high court, even as the model came under the scrutiny of the authorities such as the Enforcement Directorate.

The government, conscious that the sector has seen a big inflow of FDI, has opted for caution.

“An explicit position from the government on where it stood with reference to e-commerce has been long overdue. In that sense, it is good that some clarity has been provided,” said Vivek Gupta, partner, BMR Advisors, pointing out that close to $10 billion in funding has been committed to the sector.

“The government had very little elbow room to really state a policy position. And hence, it has chosen to bless the marketplace model with some safeguards that the marketplace should not act like the retailer,” he added.

According to the press note issued by the department of industrial policy and promotion (DIPP), a marketplace model is an information technology platform run by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

However, DIPP has prohibited FDI in e-commerce companies that own inventories of goods and services and sell directly to consumers using online platforms.

The marketplace e-commerce companies will be allowed to provide support services to sellers on their platform such as warehousing, logistics, order fulfilment, call centre and payment collection.

The new policy also mandates such e-commerce companies to display contact details of the sellers online. The warranty/guarantee of products or services sold online will also be borne by the sellers, not the e-commerce company.

Amazon funds discounts by sellers indirectly through a route it calls “promotional funding”. This it how it works: Amazon recommends the amount of discounts to its sellers on products, but doesn’t force them to adopt these prices. Sellers, however, go along as Amazon finances the discounts.

Flipkart’s largest seller WS Retail Services Pvt. Ltd easily generates more than 25% of the company’s sales while Cloudtail India Pvt. Ltd, the biggest seller on Amazon India, contributes even more.

Flipkart has been gradually reducing WS Retail’s business over the past 15 months as it shifts to a marketplace model. Following the new regulations, Flipkart may have to accelerate its transition.

Cloudtail India, a joint venture between Inc. and N.R. Narayana Murthy’s Catamaran Ventures, is now the key growth driver for Amazon India, generating at least 40% of the company’s sales in some months, Mint reported on 29 October. Cloudtail is particularly dominant in electronics and fashion sales, two of the three largest categories for Amazon India (run by Amazon Seller Services Pvt. Ltd). The new regulations mean Amazon India may have to find new sellers on its platform.

“While a seller may sell goods at a discount, marketplaces have now been prohibited from funding discounts through bonus schemes, marketing cost reimbursement, etc. Accordingly, there is a strong possibility that prices of products online will revert to levels that are comparable with offline prices. This could make online marketplaces less attractive to shoppers and investors,” said Stephen Mathias, partner, Kochhar and Co., a law firm.

Rajnish Wahi, senior vice-president, corporate affairs and communication, Snapdeal, said the guidelines recognize the transformative role that e-commerce marketplaces will play in the Indian market.

“True marketplaces like Snapdeal have democratized commerce, providing millions of businesses a platform to sell beyond their geographic boundaries. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India,” he said.

Flipkart and Amazon didn’t immediately respond to emails seeking comment.

The share of e-commerce in retail is expected to jump from 2% in 2014 to 11% in 2019, while the share of physical, organized or modern retail is expected to shrink from 17% to 13%, according to a report by property consultant Knight Frank India Pvt. Ltd and the Retailers Association of India (RAI).

Interestingly, the e-commerce regulations come at a time when the finance ministry is finding ways to tax e-commerce activities such as downloading of songs, movies and books, online consumption of news, software downloads and online sale of goods and services.

The government in the budget allowed 100% FDI in marketing of food products produced and manufactured in India. In November last year, the government also allowed a manufacturer to sell its products manufactured in India through retail e-commerce.

Two retail associations representing brick-and-mortar retailers, the RAI and the All India Footwear Manufacturers and Retailers Association, have approached the Delhi high court arguing that online retail companies have gained an undue advantage by being allowing access to FDI through which they are able to provide deep discounts that traditional retailers cannot match.

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They also argued that the present retail policy of the government does not allow such e-commerce companies to directly sell to customers, but that, in the garb of the marketplace model, such online companies are directly selling to customers, violating rules.

In an affidavit submitted before the Delhi high court on 21 December, DIPP said the current FDI policy neither permits FDI in B2C e-commerce nor recognizes the marketplace model in e-commerce followed by companies such as Flipkart, Snapdeal and Amazon

source: Livemint / Wed, Mar 30 2016

Mobile banking sees dramatic surge in India

Amount transacted in December 2015 rises more than fourfold from year-ago period; focus on corporate clients


Mumbai: The value of transactions concluded over smartphones surged in recent months as banks encouraged businesses to manage their finances using mobile phones and mobile usage among retail customers expanded rapidly.

The value of mobile banking transactions jumped 46% to Rs.49,029 crore in December from the previous month, according to Reserve Bank of India data.

The value of such transactions surged 82% over the September-December period, the RBI data showed.

Bankers attributed the surge to an increase in the number of corporate customers transacting on their phones, along with the continued growth in retail mobile banking transactions driven by the adoption of smartphones across the country.

“Our economy is now graduating into an interaction-based economy. Customers are highly concerned about the time and expense related with making transactions at an outlet or a branch,” said Alok Shende, the founder-director and principal analyst at Ascentius Consulting, a technology and analytics consultancy.

While mobile recharges, bill payments, money transfers and purchases on e-commerce websites dominate the retail transactions that take place on the mobile platform, large-value transactions by corporate clients have resulted in an increase in the amount transacted through the phone, bankers said.

On a year-on-year basis, the amount transacted in December 2015 rose more than fourfold from the Rs.11,323 crore transacted in the year-ago period.

For State Bank of India (SBI), the average size of a banking transaction on its mobile platform has jumped fivefold since the bank introduced two applications for its corporate customers.

SBI unveiled State Bank Anywhere-Saral for the SME sector (small and medium enterprises) in May and State Bank Anywhere -Corporate for its larger corporate customers in October, leading to an increase in the average transaction value.

“We have about half-a-million corporate banking customers on our web banking platforms, and we want to bring most of them on mobile by September,” said Manju Agarwal, deputy managing director for corporate strategy and new business at SBI.

At present, about 25% of SBI’s retail customers on web banking also transact through their phones, Agarwal said. SBI aims to increase this to about 50% by the end of the second quarter of 2016-17.
Private sector lender Axis Bank Ltd, which introduced two mobile applications for its corporate banking client in October, allowing them to conduct foreign exchange-related and trade finance-related payments on the phone, has also seen a surge in the number of corporate clients using the mobile banking platform.

Axis Bank has about 2.4 million customers who actively transact on the mobile platform, which also includes its SME clients.

“In case of SMEs, the business owners are usually very involved with the day-to-day transactions, and therefore need the mobile applications, which allow them to manage money on the go. This is the space that banks need to be in,” said Rajiv Anand, group executive and head (retail banking) at Axis Bank.

The private sector lender’s average mobile transaction size stands at more than Rs.11,000 currently, Anand added.

In December, Axis Bank saw more than six million mobile banking transactions worth Rs.6,268 crore.

One of the main challenges in bringing corporate clients to mobile banking services is the two-person approval system that companies have for financial transactions, bankers said.

With banks coming up with better proprietary technology, they have been able to overcome this challenge, allowing for more coordinated transactions among different users from the same company.

HDFC Bank Ltd, which reported more than 3.9 million transactions worth Rs.8,717 crore in December, is also working on pushing its corporate clientele to shift to the mobile platform.

Nitin Chugh, executive vice-president and head of digital banking at HDFC Bank, said that the private sector lender has been conducting sessions with its corporate clients trying to explain how moving from web to mobile will help in conducting cost effective and timely transactions. “At a ticket size of about Rs.34,000-35,000 per transaction, we are already higher than most of our industry peers, when it comes to mobile,” Chugh said. “By bringing in more corporate clients, we can increase this number further. We are working on introducing more user intuitive services for web and mobile so that customers can have a better experience.”

While larger corporate transactions are pushing up the ticket size, the number of transactions is also continuing to rise driven by increased adoption of smartphones.

The number of mobile banking transactions has risen from 16.8 million in December 2014 to 39.5 million in December 2015, according to RBI data.

“As customers use more smartphones and mobile connectivity improves, we will see banks trying to come up with more effective applications in the market. This will boost the number of transactions and the value involved,” said Axis Bank’s Anand.

At ICICI Bank Ltd, the focus remains on the fast-growing retail segment. It reported the second largest number of mobile banking transactions.

According to Rajiv Sabharwal, executive director of ICICI Bank, most of the lender’s corporate customers transact only on the web, while the adoption of mobile transactions among retail consumers has picked up. Retail mobile transactions will lead the way with more smartphones in the market, he added. “While the bank’s overall transactions have been rising by 20% a year, we have seen mobile transactions rise by a much higher margin over the last 18-24 months. The average ticket size now stands at about Rs.15,000 per transaction. Our aim is now to get more customers on this platform and try to customize services depending on individual customer profile.”

According to Sabharwal, the growth in smartphone sales over the last three years has resulted in this increase in mobile banking. Smartphone sales in India are expected to rise to 160 million in the year ending 31 March 2017 from 100 million in 2015-16 on the back of falling prices and a shift from feature phones to smart devices, industry association Assocham said last week.

source: Livemint / 28-March-2016

Are we moving to a cashless society?


While the tech-savvy have reduced their dependence on cash by 30-40%, many are still not using cards because merchants charge them extra
Many consumers in metros have seen their cash transactions go down significantly because of growing e-commerce, expansion of mobile wallets and online banking. This is only the start of a march towards becoming a cashless society. Things are expected to change dramatically in a few years for urban consumers. Many entities are working on different electronic payment mechanisms that can usher in a digital payment revolution. Wallet companies are aggressively tying up with retailers to let customers use mobile payments. National Payments Corporation of India (NPCI), a company promoted by banks, is working on a mechanism that will allow consumers to transfer money and make payments almost as easily as they send a text message.
The Reserve Bank of India (RBI) has allowed 11 payments banks and 10 small finance banks to open shop. RBI also wants to make it cost-effective for banks to provide point of sale (PoS) terminals (for using credit and debit cards) at small merchant establishments. And, to incentivise consumers for more electronic transactions, the government has withdrawn the surcharge, service charge or convenience fee on digital payments on cards and online payments for any government service.
Need for change
While digital payments are on a rise in metros, they are only five per cent of all transactions in the country. The cash to gross domestic product ratio is one of the highest in the world – 12.4 per cent in 2014, compared to 9.5 per cent in China and four per cent in Brazil. Even the number of currency notes in circulation is high: the US has 34.5 billion notes in circulation, India has 76.5 billion.
The amount of currency in circulation stood at Rs 1,283 lakh crore in 2013-14. Of this, only a small amount is with banks, but this is changing. Electronic payment methods such as credit, debit and pre-paid cards added about Rs 40,000 crore to the economy between 2011 and 2015 and created 336,000 jobs, according to a Visa study by Moody’s Analytics.
Going cashless brings better tax revenue, more financial inclusion and benefits individuals too. It gives the convenience of banking from anywhere by smartphones, funds are on tap and money in the bank earns interest. Also, there is no risk of carrying currency notes and once your spending pattern is known, banks can offer you customised benefits.
Changes to come
One of the biggest hindrances in growth of digital payment is merchants’ reluctance to take PoS terminals, as these are costly, take more time than cash payments and also make business owners accountable. According to Sunil Kulkarni, deputy managing director of Oxigen Services, there are 15 million retail shops but only 0.6 mn have PoS terminals.
Digital payment players are making PoS either more efficient or eliminating the need for any physical infrastructure. Most of the next-generation payment systems use smartphones for transactions. Dilip Asbe, chief operating officer at NPCI, says: “An individual will be able to transact across banks on a smartphone using his Aadhaar number, mobile number and a virtual payment address. Each person gets a unique identity and doesn’t need to enter any bank account information. It’s interoperable and will work across payment channels, devices and institutions.”
The Paytm app can be used for offline payments. It has already tied up with retailers such as Cafe Coffee Day and Barista. App-focused payments reduce the need for physical infrastructure and, therefore, can enrol retailers faster. “By 2020, our goal is to cover three times the PoS terminals that exist today and have half a billion customers on our platform. We want to be present for all possible transactions a customer does,” says Nitin Misra, vice-president, products, Paytm. The company has also received a licence for a payments bank.
Other wallet players have a similar aim. Kulkarni of Oxigen says other than using the wallet to send and receive payments at merchants, the company is also implementing a ‘universal’ PoS terminal that not only allows transactions through cards but can be used for recharge and also be a payment wallet. “Our services are interoperable,” he says.
How fast?
India is largely a cash-happy nation. Individuals find transacting in cash easy, fast and it is now a habit. People are not moving quickly towards adopting digital payments. Even now, 60 per cent of e-commerce business is cash on delivery. “One key thing that needs to be done is to bring down the transaction time and many are working on various solutions. Also, merchants need to be incentivised,” says Vijay Mani, senior director, Deloitte. Kulkarni of Oxigen says there will be growth but it will be slow and steady. A large part of the population still don’t have bank accounts.
Investment advisor to start-ups
Digital payments have made life easier for the 29-year-old, who helps start-ups raise funds. Of her total monthly expenses, only 15 per cent of transactions happen in cash. The rest are online or through use of cards. Most of her day is spent in travelling for meetings. She uses an app to book a taxi and pays using her e-wallet. The venues of meetings are mostly coffee shops or restaurants, where she uses her credit card. Most of her other transactions such as payments for mobile, broadband, satellite television, credit card, groceries, outstation travel and shopping are done online. She pays cash for home-delivered food, milk and laundry and to her maid and mechanic. For this, she maintains only Rs 2,000 in her purse and visits her bank ATM once a week.
“Things have changed drastically since 2010 when I first transacted online to recharge my mobile phone with my debit card. At that time, my parents got upset when I informed them that I had applied for a credit card, which was supposed to be for the rich. Middle-class families thought it will always lead to bad debts,” she says. Recently, her grandfather wanted to get a credit card issued, as he wanted to transact online.
There are occasions when retailers charge her two per cent extra for transacting by using cards or offers discounts if she pays by cash but she mostly prefers using her card, as she doesn’t keep a lot of cash. “I stopped keeping cash after a thief snatched my purse,” she says.
Tourism professional
As Kapil Dev Bhagat, 46, leaves home for office at 9 am, his first job is to fill petrol in his car. Anyway, the needle is nearly pointing to the empty mark. “Couldn’t have happened at a worse time,” he fumes, for he needs to be in office by 10 am for a review meeting with his boss. After reaching the petrol pump, he realises that he does not have enough cash. The credit card comes to his aid, as usual.
Bhagat’s job with Jet Air Tours is a hectic one and entails a lot of travelling. Earlier, he used to carry wads of notes but he has increasingly learnt to depend on cards, both credit and debit. The best part: He has abandoned standing in lengthy queues to pay utility bills like before. Earlier, he’d make these payments from his home computer. Now, he has downloaded his bank’s app on his smartphone and uses it to pay his bills. When his boss is not around, he indulges in a bit of online shopping on the office computer as well. Visits to malls during the weekend and forays to fine dining restaurants are all paid for by the credit card.
On the way back from his office in central Delhi’s Connaught Place to his home in South Delhi’s Mehrauli, he remembers it is his marriage anniversary the next day. He takes a small detour to the South Extension market and buys ear studs, which his wife had helpfully pointed out to him when they were earlier doing a bit of window shopping in this market. Once again, his trusted card comes to his rescue for paying the bill. His final stop for the evening is his neighbourhood Mother Dairy, where, having purchased the daily quota of toned milk, he makes the payment with the card the dairy owner has issued recently. On the whole, he barely uses any cash during the day, except for that occasional snack or tea that he has in the office canteen. Life has almost become cashless for him.
Source: Business Standard
Tinesh Bhasin & Sanjay Kumar Singh March 14, 2016 Last Updated at 08:52 IST

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