While buying Luxury goods using Credit card is a huge trend globally, Indians, as usual, choose to stand out! From my observations, I have arrived at the fact that most Indian businessmen would prefer to buy in cash rather than by using credit card or cheques, because using a card or any form of formal, recorded transaction would mean disclosure of their income.
‘Disclosure of income’ – the term itself may seem rather curious to most people from other nationalities, but in India, it’s a rather common practice. The high income tax structure in India, makes people devise various unique ways to save on the tax money. Hence, a lot of deals are made in cash, with no formal record. That is how, India, has a huge parallel economy, which is where the bulk of sales for luxury brands in India come from. So, most businessmen prefer buying in cash, so that they do not have to ‘show’ their income, and also because they usually have excess ‘cash’ and less of ‘white money’. (This is mainly true for businessmen only and not for the salaried HNI, whose entire salary is on paper and recorded – and it’s the businessmen who are the primary buyers of luxury goods in India as of today)
Requests for cheque payments and credit card purchases are extremely low, and are often made only in cases where the buyer is able to show the purchase as part of a business related expense (since that becomes non-taxable). Hence categories like travel and hospitality see a lot of credit card purchases. In case of high-end fashion, it is primarily purchased in cash, except in unique cases, like those of Bollywood producers, etc. who very well buy them for their business needs.
India, hence, also has a unique market for payments made in ‘part cash – part cheque’ in order to disclose only how much the buyer wants to. This is most common in high value, home grown industries like jewellery, where a part of the same purchase is made with a proper record and the rest, without record.
Now, in such a scenario, what do you think is the future of e-commerce and online retail for Luxury goods in India, since most online retail requires an ‘on record’, credit card payment?
The Indian businessmen don’t mind buying smaller items, up to a certain value online, but not high-value purchases like luxury goods.
Hence, any e-commerce portal for luxury goods retail in India, will have to arrive at alternate methods of cash payment, e.g. cash on delivery, etc. However, when it comes to expensive items, companies would obviously be sceptical, and not want to risk cash on delivery... hence, there have to be other methods as well. For example, Lx-world.com, the first to enter Luxury e-commerce website in India, offers a cash payment procedure, where only once the company collects cash, the order is processed. This however, makes the process much longer. Also, in such a case, the trust on the online portal and its credibility is extremely important, and that in itself is something Indians are still struggling with – to trust an online portal with their money.
Hence, in my opinion, contrary to what most the brands and marketers believe, Luxury e-commerce in India still has a long way to go...
