How Amazon, Flipkart and Mukesh Ambani can help save India's banks

Amazon Flipkart claimed record sales during the recently concluded six-day online shopping bonanza.

Business Standard : A common refrain you hear in India is, “There’s no credit in the market.”

The despondence cuts across industries as diverse as real estate, autos and road construction. An 88 per cent slump in the flow of funds to the commercial sector between April and September shows that the producers’ unease is justified.

However, one credit tap is starting to gurgle, giving some cause for optimism. Pocket-sized loans are feeding online consumption, with demand coming from smaller cities and towns. The amounts are still tiny, but as digital spending grows, financing it has the power to turn the page on Indian lenders’ underwriting of soured corporate loans: the source of a $200 billion sigh of collective agony.

Amazon.com Inc. and Walmart Inc.’s Flipkart Online Services Pvt claimed record sales during the recently concluded six-day online shopping bonanza that marks the start of the Indian festival season. Although nowhere close to Alibaba Group Holding Ltd.’s $31 billion Singles’ Day promotion in China, the Indian version of Black Friday has grown fivefold to $3 billion in four years, according to a review of this year’s sales by RedSeer, a consulting firm. Add the spending between now and Diwali, the Hindu festival of lights, and Forrester Research reckons the total for a month of online purchases may fall just shy of $5 billion.

Although the 30 per cent growth this year was slower than in the previous three, it’s a strong outcome in a weak economy. Both of India’s leading e-commerce marketplaces cited small towns – and credit – for their success. Flipkart says Tier 3 cities ordered 100 per cent more goods this year. The share of transactions using credit options grew by 70 per cent, with a majority of these people living outside of big cities. Amazon revealed that three out of four customers who availed themselves of financing came from Tier 2 and 3 cities; significantly, every second buyer who used credit did so for the first time.

All this is hardly unique to India. China’s e-commerce boom saw an explosion of microloans, with millennials buying hamburgers on credit and the buy-now-pay-later habit picking up in Indonesia. What makes India interesting is the possibility that soon even physical retail will embrace digital in-store credit – minus plastic.

A mobile-payment app with pay-later options at physical stores will be an important innovation. For all its expansion, e-commerce will account for only 7 per cent of India’s $1.2 trillion retail sales by 2021, according to Deloitte.