Mobile phone retailers are reportedly against the zero down payment financing scheme that allows customers to make purchases without paying anything up front. They claim that these schemes, popular among buyers, are highly susceptible to fraud.

According to a report by ET, retailers say that 10-12% of purchases under zero down payment schemes are fraudulent, leading to significant financial losses, increased grey market sales, and retailers facing bans from non-banking financial companies (NBFCs).

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The Fraud Problem

The report says that Organised Retailer Association (ORA) has written a letter to TVS Credit, a non-banking financial company (NBFC), which facilitates loans to purchase mobile phones, saying its members have noticed fraudsters and individuals exploiting the zero down-payment scheme to provide cash loans to people seeking cheaper interest rates.

Long-tenure instalment plans, especially the 24-month zero down payment option for Apple iPhones, are being utilised by fraudsters. Fraudsters acquire Apple products through this scheme, sell them back at a lower price, and then raise false complaints about non-receipt or non-financing of the phones, further complicating the issue, according to the report. 

Zero down payment scheme allows customers to purchase mobile phones without any initial payment. The cost of the phone is divided into equal monthly instalments, often over a period of 12 to 24 months. While this makes high-end smartphones more accessible, it also opens up avenues for fraud.

How Fraudsters Exploit Zero Down Payment Scheme?

Fraudsters exploit this scheme by obtaining phones through zero down payment plans and selling them at lower prices in the grey market. This fraud involves people who are looking for loans at lower interest rates, which causes false complaints and financial losses for retailers.

Let us understand this with the help of an example:  

Let’s say John wants to buy a new iPhone that costs Rs 1,00,000. With a zero down payment scheme, he doesn’t have to pay anything right away. Instead, he agrees to pay Rs 4,167 each month for 24 months (assuming no interest is charged).

While this scheme is helpful for many customers, it can also be misused by fraudsters. Here are some examples of misuse: 

Getting the Phone: A fraudster finds someone who needs cash quickly. He convinces this person to use a zero down payment plan to buy an expensive phone.

Selling the Phone: The fraudster buys the phone from this person at a lower price.

Reselling the Phone: The fraudster then sells the phone in the grey market for a profit.

False Complaints: The person who purchases the phone might then falsely claim they never received it, trying to avoid paying back the loan.

Simple Fraud Example:

– John needs a quick loan but cannot get one at a reasonable interest rate.

– Fraudster Mike offers John a deal: John who bought an iPhone worth Rs 1,00,000 using a zero down payment scheme can sell his phone to Mike for Rs 70,000 and will get instant cash.

Outcome: John gets Rs 70,000 cash immediately, and Mike (fraudster) sells the iPhone in the grey market for Rs 90,000, making a Rs 20,000 profit.

Later, John falsely claims he never received the phone, leading to financial losses for the retailer and potential legal troubles.

Demands to Tackle this Fraud

To tackle fraud, retailers have made several requests:

End Long-Term Zero Down Payment Loans: They suggest eliminating long-term loans with zero down payments and replacing them with short-term loans of 10, 12, or 15-month tenures with adequate down payments to reduce the risk of fraud.

Also Read: Is it Better to Buy 0.9 Carat Diamond than 1 Carat Diamond?

Lock Devices on Non-Payment: Retailers urge mobile phone brands to lock devices if loans are not repaid, preventing their resale in the grey market.

Implement Open-Box Deliveries: They support open-box deliveries documented with video or photos as proof of delivery to the customer.

Also Read : Jio, Airtel and Vi Hike Prepaid, Postpaid Plan Prices: Check New Rates From July 2024

Retailers are calling for stricter regulations and better enforcement to protect their businesses and reduce fraud. By addressing these concerns, the mobile phone retail sector aims to enhance security and trust in financing schemes, benefiting both retailers and consumers.

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