Despite both sides having a lot to offer the other, the balance of power between e-commerce companies and banks has long been messy.
In the last five years, users have flocked to e-commerce portals lured by the convenience and choice on offer. Together, Amazon and Flipkart have 300 million registered users, according to newspaper reports.
Impact of the e-commerce platforms
This user base has become a second-hand user acquisition and engagement channel for everyone from banks to fintech lenders to non-banking financial companies (NBFC). And during the festive season, when spends on e-commerce platforms spike, all these players find themselves locked in a competition to use their products over the other payment options on offer. “We need this to build salience with the user and build a deeper relationship with the customer,” explained a senior banker. Typically, a bank spends about Rs 15 crore during these events, according to the banker quoted above.
Latching on to e-commerce shoppers is especially crucial for lenders as nearly 50% of customers who shop online have never taken a loan before, according to an e-commerce executive at Flipkart. Being able to tap into this user base doesn’t just benefit banks and lenders, it also helps e-commerce platforms. Increased lending allows shoppers to spend on expensive goods like consumer durables.
Despite the benefits going both ways, however, the balance of power has skewed towards e-commerce platforms. With hundreds of millions of users, they are in charge. In addition, online sales prompt increased usage of debit cards, which are traditionally only used for ATM withdrawals. “We see higher digitization. Many users use their debit cards for the first time during these events,” says Ravi Santhanam, chief marketing officer of HDFC Bank.
With the deck stacked in their favor, e-commerce companies have ensured that their partners are the ones who share the bill for cashbacks equally. Santhanam, however, says e-commerce platforms foot the majority of cashbacks.
Giving in to the e-commerce platforms’ terms, however, doesn’t grant exclusivity. After all, Amazon and Flipkart are spoilt for choice when it comes to lending partners. And as if to rub salt in the wound, Flipkart has also applied for an NBFC license to begin lending on its own.
Even a large bank like HDFC hasn’t been able to alter this paradigm. According to a former Amazon executive, companies like Amazon don’t change the terms of the deal too much just because it’s a large bank. This is certain to have rubbed HDFC the wrong way. “HDFC Bank is not used to having terms dictated,” said a former HDFC Bank employee. Amazon did not respond to questions sent, while HDFC Bank did not comment on this specifically.
Beyond banking
The wake-up call for HDFC, however, was likely the co-branded credit cards that Amazon and Flipkart issued with ICICI Bank and Axis Bank, respectively. HDFC Bank’s bid did not meet the criteria laid out by the e-commerce giants, and it found itself out in the cold. According to an e-commerce executive, HDFC realized it could not take its partnership with the e-commerce companies for granted.
While HDFC responded to the loudest, it’s hardly the only one opting out. Other banks are also gauging the return on investment of these partnerships. HDFC’s smaller rival RBL too opted against partnering with an e-commerce company for the festive sales.
“The bank was not getting anything material in return (in terms of spending) from these deals for the amount it was investing. E-commerce companies want banks to fund the cashback and banks also pay them for visibility. This didn’t make sense. Or they end up giving days of the sale that are not that great,” said a source close to RBL Bank. He added that the bank, in fact, saw the same amount of spending even without the partnership.