Mobile phone retailers are calling for an end to financing schemes after reporting 10-12 per cent fraudulent purchases. They are advocating for open-box deliveries and biometric verification to prevent misuse. Apple is aware of the issue, but no significant action has been taken yet.
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New Delhi: Mobile phone retailers have called for scrapping of the popular financing schemes without down payments saying 10-12% of all such purchases were fraudulent, resulting in financial losses, boosting grey market sales, and retailers being banned by non-banking financial companies (NBFCs).
They have also demanded enforcement of open-box deliveries with documentary evidence of handing handsets over to customers along with biometric verification when processing loans in a bid to curb misuse.
Financing schemes are one of the most popular ways of purchasing high-end smartphones, with every one out of three handsets purchased in 2023 using monthly installments, according to Counterpoint Research.
However, these long-tenure monthly installment schemes are being manipulated by individuals to obtain cash and commit fraud.
Retailers have especially highlighted a 24-month long installment scheme with zero downpayment valid on Apple iPhones.
“It has come to our notice through our members that this scheme is being exploited by fraudsters and individuals within the system to facilitate cash funding by involving individuals looking out for loans at a cheaper rate of interest in the loan process,” said a letter written by the Organised Retailer Association to TVS Credit, a non-banking financial company which facilitates loans to purchase mobile phones. ET has seen a copy of the letter.
“The fraudulent activities involve customers obtaining Apple products through the 24/0 scheme, selling these products back to fraudsters at a lower price, and subsequently raising false complaints of non-receipt or non-financing of the phones,” the letter added.
According to industry executives, Apple is aware of the issue, but have not received much evidence of cases of fraud from retailers themselves to further investigate. They claimed that even if there is a widespread occurrence of loan frauds, frauds on iPhones are a small percentage.
TVS Credit and Apple did not respond to ET’s queries.
ORA represents large-format retail stores such as Sangeetha Mobiles, Poorvika, BigC and others.
It further said that it is working with All India Mobile Retailers Association (AIMRA), which has 1.5 lakh mobile small retailers across the country.
In its letter, ORA said there were instances where individuals looking for loans at cheaper rates of interest are roped in by fraudsters to obtain financing. Installment schemes for smartphones typically carry a nominal rate of interest.
These financed products are then sold back to fraudsters at a lower price, who subsequently resell them in the grey market. After a period, these buyers falsely claim they never received the product in a bid to avoid repayment, putting the reputation of retailers at stake.
Retailers said 10-12% of all purchases made using financing schemes are fraudulent, which results in financial losses, grey market sales, retailers being banned by NBFCs and customers ending up with locked handsets.
“As a result, store managers are often threatened or confronted by the police when products are not delivered to consumers who were fraudulently granted loans,” the retail association said.
ORA president TS Sridhar told ET that NBFCs have been made aware of the issues but they continue to collect money from stores by threatening to block their access to credit schemes.
To curb such instances of fraud, retailers have demanded that long-term loans with zero down payments should be eliminated. In its place short-term loans of 10, 12 or 15-month tenure with adequate down payment should be brought in to restrict fraud.
They have also urged mobile phone brands to lock devices upon non-payment of loans, along with open-box delivery documented with video or photos.
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