Flipkart to arrange easy working capital loans for vendors to ensure loyalty

BENGALURU: Easy working capital loans — that’s the carrot Flipkart is holding out to its 80,000 merchants to stay loyal and stay active.

With the peak festival season behind it, Flipkart is switching attention back on strengthening its seller network, crucial for ensuring robust sales. The company is expanding its loan scheme to all its merchants five months after it began a pilot with 250 sellers and disbursed loans worth Rs 50 crore in collaboration with top banks and financial institutions.

Merchant loyalty and engagement have become key factors in India’s cut-throat ecommerce industry. Snapdeal and Amazon, too, have launched similar loan schemes for their merchants, seeking to lock in key sellers and encourage them to sell more. Flipkart, India’s largest online marketplace by sales, said its loan scheme will give its vendors easier access to loans with basic documentation in 2-5 days.

"One of the biggest problems that our sellers face is that… most traditional banks do not understand the nature of ecommerce business and so they refuse to give out loans without collaterals and high interest rates," said Manish Maheswari, head of Flipkart’s seller ecosystem division.

To solve this problem, Flipkart has designed a credit rating mechanism to gauge the loan-worthiness of its sellers, which banks and financial institutions can use to sanction collateral-free loans at low interest rates. For the ratings, Flipkart takes in a variety of inputs. "We can predict the risk by analysing a merchant’s selling patterns from ratings, customer feedback as well as social profile," Maheswari said.

The Bengaluru-based ecommerce company has tied up with State Bank of India, Axis Bank, India Infoline Financial Ltd, Bajaj Finserv, NeoGrowth Credit Pvt Ltd, LendingKart and Capital First to provide loans to its sellers, including those operating in manufacturing clusters in small towns and cities.
"We add a layer of authenticity and trust on both sides, hence enabling our merchants to get as much as Rs 3 crore of working capital loans to scale up their business," Maheswari said. "Whatever revenue these sellers get, a part of that directly goes to the bank, so the lender has a comfort that the seller will not default." More than half of Flipkart’s merchants are actively selling on the platform, he said. On average, for ecommerce companies in India, less than 20% of the merchants generate about 80% of the sales.



Crucial gift

For merchants like Raju Lunawath, who were part of the pilot, Flipkart’s growth capital initiative came as a crucial festival gift. His Bengaluru-based company Amazestore, which has been selling home and kitchen appliances on Flipkart for over two years now, availed a loan of Rs 2 crore ahead of Diwali. "The loan got processed in a day and half," Lunawath said, which helped him place bulk orders, ramp up stocks and plan aggressively for the festival season. His business increased by 30 times during the sale period.

Flipkart is targeting gross merchandise value — the total price of all the goods sold on its platform — of $10 billion for this financial year ending in March. Rivals such as Snapdeal and Paytm are seeking to overtake Flipkart by roping in hundreds of thousands of merchants to their platforms to boost overall sales.

In May, State Bank of India said it signed a memorandum of understanding with Amazon for seller financing.

In October, Snapdeal said it planned to disburse loans worth around Rs 1,000 crore by March 2016 to small and medium enterprises under its seller financing platform, Capital Assist. In November, LendingKart tied up with Paytm to offer collateral-free loans to small and medium enterprises and sellers through its mobile payments wallet.

India’s online retailing market is expected to triple to $69 billion in 2020 from about $23 billion now, triggered by increasing Internet usage, discounting and investment by online retailers, Goldman Sachs said in a recent report.