The All India Mobile Retailers Association is urging brands like Samsung and Apple to stop zero-cost EMI schemes. Retailers claim these plans inflate smartphone prices by up to 19% to cover subvention costs. Moving to interest-bearing loans could lower base prices and improve consumer financing approval rates, according to the industry body.
Smartphone retailers in India are calling for a structural change in how devices are sold on credit. The All India Mobile Retailers Association (AIMRA), which represents a significant network of offline mobile stores, has approached major brands including Samsung, Apple, Xiaomi, Oppo, Vivo, and Realme to request the discontinuation of zero-cost EMI schemes.
The Hidden Cost of Zero-Cost EMI
At the heart of the issue is the cost of subvention. While consumers perceive zero-cost EMI as interest-free, retailers point out that the financial burden is shifted to the manufacturer. This cost, reportedly ranging between 17% and 19% of the handset's price, is typically added to the retail price of the smartphone. AIMRA argues that this practice creates artificial price inflation, making devices more expensive for all buyers, regardless of whether they choose to pay upfront or use an EMI plan.
Proposed Move to Interest-Bearing Loans
AIMRA proposes that brands adopt a model common in the automotive and home loan sectors, where consumers pay interest directly on financing products. Retailers believe this shift would offer a more transparent pricing structure. By eliminating the high subvention costs currently paid by brands, the base price of smartphones could potentially decrease.
Furthermore, industry representatives suggest that moving away from subvention-based financing could improve consumer loan approval rates. Currently, approval rates for smartphone financing often hover below 50%. Retailers argue that by offering interest-bearing loans through banks and non-banking financial companies (NBFCs), financiers could offer more flexible repayment tenures, extending up to 48 months, which could increase total sales volumes by making smartphones more accessible to a broader consumer base.
Industry and Consumer Impact
Shifting the interest burden to the consumer is a significant change in strategy for the mobile industry, which has used zero-cost EMI as a primary tool to drive demand for premium and mid-range devices. Critics of the current system point to instances where phones with nearly identical specifications are priced differently based on the EMI offers attached to them.
While the change aims to lower headline prices, it would mean that customers opting for credit would pay interest, potentially increasing the total cost for those specific buyers. The ultimate impact on company profit margins and overall demand will depend on how brands balance lower base prices with potential changes in consumer purchasing behavior. Investors may monitor whether major brands choose to adopt this model and how it impacts sell-through rates and average selling prices in the coming quarters. The next critical update will be the response from major smartphone manufacturers regarding these demands from the retail community.