Binita Sarma (name changed), a banker in her early thirties based in Guwahati, Assam, wants to buy the top-end model of the latest iPhone, but falls short of the requirement by a huge amount. She doesn’t fret; she just opens the Amazon app, chooses the desired product and gets it financed through a no-cost EMI option provided by a leading private bank online, and the iPhone is purchased in a matter of minutes.
Sarma is not the only one availing of the quick credit option to buy luxury items. As per industry estimates, about 40% of smartphones in India are bought through EMIs. When it comes to iPhones, the figure goes up even higher—close to 70%.
Flexible finance fuels aspirational buying
EMIs or equated monthly instalments are spurring aspirational buying, especially among GenZs and millennials, allowing them to purchase products they wouldn’t have otherwise been able to afford. “EMIs have been instrumental in pushing up sales, both in the offline and online mode,” said Madan Sabnavis, chief economist at Bank of Baroda.
“EMIs provide the convenience of purchasing without having to make the full payment and this holds true especially for high-value goods. Even high-end purchases on credit cards that can be converted into EMIs are being preferred,” he added.
If the recent Prime Day, Amazon’s annual deal event, is any indicator, the demand for premium products is on the rise, driven by increased affordability through options like no-cost EMI, instant bank discounts, exchange offers, and additional coupon discounts. In fact, one out of four spends this Prime Day (held between July 12 and 14 this year) was on EMI, and nine out of 10 EMI purchases were driven by no-cost EMI for the purchase of smartphones, electronics and large appliances.
Amazon, during its Prime Day, witnessed more than 30% growth in no-cost EMI, with the premium smartphone segment (priced above Rs 30,000) witnessing over 60% growth in value. Nearly 70% of this growth was contributed to by Tier 2 and beyond cities. Samsung, Apple and OnePlus led the growth in the premium segment.
The convenience—and consequences—of credit
Digital finance tools are gaining momentum among lower-middle-class consumers, with app-based banking now used by 65% of this segment, particularly millennials and Gen Z, as per the ‘How India Borrows 2024’ study undertaken by Home Credit, a subsidiary of TVS Holdings and a leading consumer finance company.
Quick-access credit solutions like EMI cards and embedded finance are becoming popular options, the Home Credit study noted. According to the study, 43% of borrowers now favour EMI cards for their speed and accessibility. In comparison, 64% of respondents show a strong preference for embedded finance, often available on e-commerce and travel platforms.
In fact, consumers are now increasingly prioritising flexibility and convenience in their travel booking experiences, as observed by online travel company MakeMyTrip. “To cater to this demand, while we offer traditional options like buy now pay later (BNPL) and EMI through partner banks, NBFCs, and credit cards, we have also leveraged our own data, understood travelers’ pain points, and launched our own no extra cost flexible payment solutions including ‘book with zero payment’ for hotels and a ‘part payment’ option for international flights,” said Rajesh Magow, co-founder and group CEO, MakeMyTrip.
At MakeMyTrip, while the BNPL option is used for lower-value purchases, credit-card EMI is favoured for higher-value transactions. “The average transaction value for booking hotels using BNPL is Rs 3,873, while credit-card EMI is around Rs 16,500. Credit-card EMI is used primarily in metro markets, while the BNPL option sees more widespread adoption across both Tier-1 and Tier-2 cities,” added Magow.
Companies are now even eliminating the need for a credit card. For instance, ‘LazyPay EMI’, a new feature launched in December last year by LazyPay, a leading digital financial services provider, makes high-value online purchases more affordable and accessible for consumers across India. Consumers can finance purchases up to Rs 1 lakh with flexible repayment options ranging from 3 to 12 months.
Ankit Nahata, business head, LazyPay, said, “By making high-value purchases more affordable, we empower customers to make informed choices, while also helping merchants increase conversions and boost customer satisfaction. This new offering is projected to expand LazyPay’s customer base by 15-20% in the coming months.”
While EMI seems to be a convenient option for individuals to lap up on luxury, it is also leading to a growing burden of credit-driven consumption. A joint study, undertaken by Perfios, a B2B SaaS fintech company, along with PwC India earlier this year, revealed that salaried individuals across India allocate more than 33% of their monthly income toward paying loan EMIs.
According to the report titled ‘How India Spends: A Deep Dive into Consumer Spending Behaviour’, based on a comprehensive study of over 3 million tech-savvy consumers, lifestyle purchases accounted for over 62% of discretionary expenses, with people from high-income groups spending nearly three times as much on such items as entry-level earners.