Is Paytm breaking the rules with its cashback promotion? Some vendors in India believe so.
As The Economic Times reports, All India Online Vendors Association (AIOVA) — which represents about 500 sellers in the country's eCommerce space — has raised the possibility that the Alibaba-backed Paytm is violating FDI (foreign direct investment) guidelines by giving cashback over and above the seller-funded discount.
In response to a request for clarification on that issue made on Twitter by AIOVA, India's Department of Industrial Policy and Promotion (DIPP) responded on the social media platform: "Giving discount or not is prerogative of the seller owning inventory. FDI permitted in marketplace, not in inventory-based model."
While 100 percent foreign investment in online marketplaces is permitted in India, notes ET, those same platforms are not allowed by DIPP to influence retail prices or offer their own discounts.
In defending Paytm's cashback promotion, its vice president, Sudhanshu Gupta, told the outlet: "Everywhere in the world, including India, all financial services and payment companies incentivize consumers to use their products. Banks promote usage of their credit and debit cards by giving extra reward points and cashback ... Paytm cashback promotions are similar in nature since they are driving usage of Paytm wallet."
Online sellers made the contrary argument to ET. One such party (who wished to remain anonymous) stated: "Cashback, given above and beyond the seller discount, goes to the Paytm wallet of the buyer and is used for other purchases. Cashback offers are either not at all discussed with sellers or is discussed only with select sellers. A select group of sellers benefit from the attractive cashback offers as their products become cheaper than the rest, influencing customers' decision. This is a way of influencing pricing and not maintaining [a] level playing field."