Smartphone retailers urge brands to end zero-cost EMI schemes to make handsets more affordable

New Delhi: Smartphone retailers have suggested to brands amid soaring prices that instead of zero-cost payment plans that the industry is relying on to sell products, consumers should buy devices on regular interest-bearing loans. This will bring down the baseline prices of smartphones, they said, making handsets relatively affordable for customers.

This is because zero-interest payment plans cost smartphone brands 17-19% of the product price which they bake directly into the retail price of the phones, thereby artificially inflating prices, the All India Mobile Retailers Association (AIMRA) said in letters written to Samsung, Vivo, Apple, Xiaomi, Oppo and Realme.

ET has seen copies of the letters.

"While financing has traditionally been the primary driver for high-value handset sales, 24/0 zero-cost EMI (equated monthly instalment) subvention schemes-often costing OEMs (original equipment manufacturers) between 17% and 19% for longer tenures-have created a heavy financial burden. This expense inadvertently gets baked into product pricing, making devices even less accessible to the end consumer," AIMRA said in the letters.

AIMRA chairman Kailash Lakhyani proposed that the industry phase out the no-cost schemes in favour of standard, interest-bearing consumer loans. "Charging direct interest on consumer loans is already standard practice in major sectors like automotive and housing. Adopting this model offers significant advantages for all stakeholders," he said.

The advantages include lower b seline prices and higher profit margins for brands that would have otherwise been consumed by subvention costs passed down to customers. This would also improve approval rates by financiers, to as high as 75% from below 50% at present, allowing more consumers to access financing.

Data shared by the industry association showed that brands selling handsets with similar specifications differ in prices when offered with no-cost EMI. For instance, the Realme C83 5G is priced higher than the Realme P4 Lite, which has the same hardware, according to the company's website.

However, industry executives said doing so would shift the interest burden directly to the consumer purchasing the product on loan, while those paying upfront would be able to secure it cheaper. They added that consumer loan interests are lesser than the cost paid by the brands to offer zero-cost schemes.

Lakhyani said shifting the interest burden directly to consumers would allow banks and non-banking financial companies to offer longer tenures of up to 48 months.

"Consumers can then select repayment plans tailored to their personal budgets. Today, buyers are locked in because brands build fixed subvention charges into the sticker price, artificially inflating device costs for everyone," he said.