creating institutional renting economy in india
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Creating Institutional Renting Economy In India
Concept, Relevance, Implementa0on January 2015
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What is ‘Renting Economy’?
§ The use of manufactured products (eg. kitchen mixer) is possible, in most cases, aFer the purchase of the product
§ In ren0ng economy, a consumer can purchase the product for a limited 0me period and return the product aFer its use (eg. ren0ng a car for self-‐driving)
2 Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected]
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Relevance of Renting Economy in India
1. Unlike the developed world, India is a resource-‐starved na0on
2. Ren0ng economy monitors product u)lisa)on, ensuring resources deployed are used for its service § “ownership transfer” economy monitors product sales, which may/may not get u6lised
3 Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected]
3. Ren0ng bridges the vast economic disparity by leaps, enabling inclusion on a large-‐scale for manufactured goods
4. Ren0ng economy distributes the cost of the product over its en0re life cycle, allowing access to a manufactured product at a frac0on of cost § BoP market is more suited for small-‐value transac6ons to o>ake a product/service
§ eg. sachet marke6ng, micro-‐finance
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Why will BoP want to ‘rent’ stuff?
Common BoP reality
1. Small living spaces
2. Small/uncertain income cycle
3. Largely self-‐employed/ unemployed demographic
4. Aspira0onal lifestyle demands
Complementary Commerce Model 1. Physical goods occupy space only during
opera0onal (ren0ng) period
2. Distributed (smaller) cost and pay-‐when-‐required model is beUer suited to BoP cash flow cycle
3. Access to service tools (eg. cleaning equipment) opens channels for unemployed individuals to become skilled service providers
4. Provides sustainable, alterna0ve model to experience aspira0onal products without geXng into a long-‐term debt trap
4 Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected]
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Products relevant for Renting Economy Product selec)on
criteria
1. Portable
2. Non-‐consumable, non-‐perishable
3. Low product u)lisa)on
Poten)al examples
1. Kitchen mixer 2. Clothes iron 3. Fruit juicer 4. Hair blower 5. Hair iron 6. Vacuum/water jet
cleaner 7. Laptop 8. Computer-‐aided
sketching pad
9. Expensive kids toys 10. Industrial toolkit
• Drills, Spray Gun, etc 11. Expensive clothing 12. Vanity merchandise 13. Weighing scale
14. Digital photo frame 15. TV gaming system
• Xbox, PlaySta0on, etc
5 Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected]
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What’s so new in ‘Institutional’ renting? § Ren0ng has always existed, perhaps even before tradi0onal, ownership transfer model of commerce emerged. However, it is
§ Not uniformly available service across geographies, product categories, etc § Not currently fully exploited to poten0al due to lack of strong market forces
§ The current ren0ng business is similar to local money lenders’ opera0ons. Ins1tu1onal ren0ng envisages a transforma0on akin to what micro-‐finance did to local money-‐lending
§ Ins0tu0onal ren0ng proposes: § Crea0ng a digital framework for low-‐cost ren0ng risk & insurance § Enabling crea0on of ecosystem to build products for the ren0ng economy § Crea0ng opportuni0es for local shop owners to become ren0ng service providers
Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected] 6
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Renting Authority (RA) 1. A new organisa0on focussed on:
§ Crea0ng ren0ng risk profile of individuals § Collec0ng premiums & deposits to cover ren0ng risk § Processing disputes and disbursing insurance claims § Defining protocols for ecosystem engagement to grow the ren0ng economy
2. Can possibly be a Public-‐Private-‐Partnership (PPP), working like a u0lity
3. Have low-‐cost, high-‐volume transac0on processing in its DNA from incep0on § Leverages Aadhaar’s digital iden0ty verifica0on infrastructure § Integrates low-‐cost, small payments infrastructure § Leverages automa0on & data-‐analy0cs for real 0me decision making
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The Business Flow
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1. Person (Aadhaar holder) approaches a shop to rent a product.
2. Shop pings the new Ren0ng Authority (RA) for risk profile of person & insurance premium on product
3. RA performs Aadhaar Auth, analyses historic ren0ng history behaviour and computes ren0ng risk premium, deposit, etc
4. Aadhaar holder enables electronic fund transfer for rent charges and ren0ng risk premium to shop & RA respec0vely
5. Shop updates RA on transac0on comple0on (product return) for refunds, etc
Normal transac0on cycle
1. Shop owner flags that the rented product is not returned
2. Reminder communica0ons are sent to Aadhaar holder
3. ‘No-‐return’ established for the transac0on
4. Ren0ng profile of the shop and person is updated for future transac0ons
5. Product recovery procedure ini0ated by RA
Product theF recovery cycle
6. RA reimburses for loss of product
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Sample calculations
Assump)ons § Product cost – Rs 2,500 /-‐ § Warranty & product amor0sa0on period – 2 Years § Transac0on cost – Rs 5 (includes avg premium) § Product u0lisa0on – 50% (i.e. once in 2 days) § Expected RoI – 2% pm § ROI + Amor0sa0on -‐ Rs 154/month Pricing Model § Hourly rental – Rs 10 (i.e. 0.4% of product cost) § Daily (8hrs) rental – Rs 25 (i.e 1% of product cost)
Financial Return Scenario
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Conclusion: What will we achieve?
1. Enable inclusion in access to expensive manufactured goods 2. Efficiency in resource u0lisa0on 3. Convenience for immigrants in establishing credibility across
na0onal geographies, essen0al for ren0ng goods 4. Enable oqake of manufactured goods in new markets 5. Facilitate skilled self-‐employment 6. Gain quality insights from consumer data-‐analy0cs
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Differentiators in the commerce models Ownership Transfer Economy
1. Purchasing the en0re product is a pre-‐requisite before using the product.
2. Building trust between buyer and seller is not required since complete payment for the product is made at the 0me of transac0on
3. The pressure on recovering the en0re cost of a product from a single transac0on, makes manufacturers strip product to essen0als, compromise on quality, etc, as they enter price-‐sensi0ve BoP market
Ren)ng Economy
1. The product is owned only for the dura0on of 0me it is used.
2. Establishing long-‐term trust and civil behaviour between par0es towards the product is key for the model
3. Distribu0ng product cost across mul0ple owners gives freedom to manufacturers to enhance offering, while mee0ng price sensi0vity to significantly expand the market Eg. Airline Industry versus personal aeroplane travel
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Essentials for renting economy success in BoP markets § Focussing on enabling extremely low-‐cost of transac0on
§ Leveraging Aadhaar’s digital iden0ty plasorm § Leveraging digital payments, digital sign-‐up and engagement of ecosystem § Automa0on and data analy0cs in rewarding responsible behaviour § Planning for a paper-‐less, end-‐to-‐end digital transac0on experience for en0re ecosystem
§ Concept Selling – eg. Making ren6ng a cool, responsible choice § A ren0ng economy is a physical economy, thus corner shops (kirana stores) will need to become the last mile touch points for enabling transac0ons § An electrical repair shop can expand to rent out electronic/electrical gadgets § A toys shop may expand to rent high-‐end toys
13 Crea0ng Ins0tu0onal Ren0ng Economy in India [email protected]