Heavy discounts, attractive cashbacks and the likes of them are soon to be a history according to the new ruling by the Government of India wherein e-commerce websites can no longer offer cash backs over and above discounts to lure customers. In a view to protect the small and medium size sellers, the government no longer permits the market pace to directly interact with customers, offering them consolidated cash backs that are viewed as an influence over the price of the products.
How it all began
It all began with the All India Vendors association (AIVA) seeking clarification from the Department of Industrial policy and Promotion (DIPP) as to whether the e-commerce site Paytm offering cash backs over and above discounts to consumers was within FDI norms as Chinese firm Alibaba is its major stakeholder.
DIPP’s reaction
“Giving a discount or not is a prerogative of the seller owning the inventory. FDI permitted in the marketplace, not inventory based model” DIPP tweeted in response to AIVA’s query, but failed to clarify if Paytm’s cash back policy was within the purview of the latest FDI guidelines. The ambiguity wasn’t commented upon by other players in the market but Sudhanshu Gupta Vice-President at Paytm compared its strategy to that of banks encouraging customers to use debit and credit cards by offering reward points and cash backs. “Paytm’s cash back promotions are similar in nature since they are driving the usage of Paytm wallet,” he said. Whereas, major sellers still perceive this as a means of influencing prices.
DIPP has clearly defined an e-commerce marketplace as one that acts as a facilitator between the buyer and the seller. It does not permit these sites to influence prices directly or indirectly. Also, FDI in inventory based marketplaces and companies that sell goods directly to the consumers are not permitted. Therefore, these discounts and cash backs offered over and above the discounts are viewed as an influence over the prices of the goods of a particular seller making his products comparatively cheaper. This cash back is a win-win situation for everyone, the seller is benefitted by an increase in the volume of sales, the consumer by the lesser price and the cash back website in terms of the revenue generated in the form of commission from the marketplace. But, in reality, the cash back offers are not discussed with the sellers or discussed only with select sellers, who in turn stand to gain from the tie-up between the e-commerce site and the cash back site.
Even the Retailer’s Association of India expressed its views against these cash back offers. “These should not be issued by the marketplace. Thus, a basket level discount or cash back should be restricted to the basket order of each seller and not at a consolidated level.” It said, in a letter to Nirmala Sitharaman.
Impact
If the latest policy of removing consolidated cash back offers were to be implemented, sellers would no longer be benefitted from the offers made by the market place. They’d become autonomous in rolling out discounts and cash back offers and incurring their promotion efforts. Also, e-commerce sites like Paytm , Gopaisa , etc., whose revenue model revolves around earning commission from e- marketplaces for sales routed through them will have to have tie-ups with individual sellers. This would also mean that their revenue would be majorly hit. But, this implementation would ensure that all sellers on an e-commerce site will directly interact with customers in terms of offering them discounts and cash backs with the site being the facilitator and service provider to them, just like in brick and mortar stores in malls. The consumer though would stand to lose on earning cash back on most of their online purchases but will enjoy the benefits of discounts by the individual sellers giving them a wider range to choose their products from.
