NBFCs are getting ready to offer zero-interest EMIs on online portals:

“We are in talks with all the leading ecommerce sites to start zeropercent EMI schemes and currently finalising the mechanism since it would involve a change in technology in the back-end and the way the transaction will be completed,” said Devang Mody, Bajaj Finance’s president for consumer business. Other NBFCs too are evaluating similar opportunities, industry executives said.

Banks cannot offer zero interest EMIs on such purposes. RBI had banned such mechanisms offered by banks on online credit card purchases. The reasoning was: Someone is paying the interest, obviously. In this case it is the manufacturer of the product. RBI said that made a convoluted marketplace, where the product available to a customer without an EMI was an effectively higher cost. So, manufacturers had to pass down the savings to the customer – and the way to do it was that banks had to specify what interest they were actually getting – therefore, no 0% EMIs.

That logic will apply to NBFCs too. RBI is the eventual regulator of NBFCs also, so such action by the NBFCs to provide 0% EMIs online, will likely lead to the same result.

Remember that awesome iPhone 5S Offer? We decoded that it wasn’t, because post interest, it was a terrible waste. And because the interest rate was disclosed, so was the price without the interest – a substantially lower number than the retail price. On a larger scale that leads customers to go ask for lower prices “minus the interest”, because they now know how much it really costs.

In any case, nowadays in many products, online stores like Flipkart and Amazon are offering special deals – you buy on your credit card on EMI, but Flipkart “returns” the interest and service charge portions of your EMI as a “cashback”. Which means you get to use the money for future purchases, and while some of this could be funded by the stores (and thus, the VCs) themselves, many must be a back-to-back offer from the manufacturer – who earlier would have paid the banks the interest portion, and now will happily pass it through the online stores.

While the NBFCs are already charging 0% on loans in offline retail stores, going online would be an easy thing. We expect regulation to follow through and curtail such schemes for the same reasons banks were told: to make such things more transparent.

Disclosure: I have personally benefited from such schemes in the past, having bought TVs, cameras, phones, fridges and microwaves through 0% schemes, largely because I had no further way to get a discount from the retailer. But I’d like these schemes to get more transparent so that I can actually get the pre-interest price at a much larger discount – why pay the banks when I can benefit?

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