After running EMI and No Cost EMI offers, two of the biggest operational concerns for banks are Reconciliation and EMI Cancellation. These two factors significantly impact the actual profitability and efficiency of any offer.
Let’s understand how reconciliation works and why EMI cancellation is such a critical issue for banks.
How Does Reconciliation Work in EMI Partnerships?
Reconciliation is the process of matching and verifying transactions, subvention amounts, refunds, and settlements between the bank, Payment Aggregator/Orchestrator, and the brand/merchant.
In simple terms, it ensures that:
- The correct number of transactions have been processed under the offer.
- The subvention/discount amount claimed by the aggregator or brand is accurate.
- Refunds and cancellations are properly accounted for.
- The final amount payable by the bank or brand is correctly calculated.
Reconciliation is usually done on a weekly or monthly basis. Payment Aggregators and Orchestrators play a major role in this process by providing detailed reports and dashboards. However, mismatches still happen due to cancellations, partial refunds, or technical errors.
Why is EMI Cancellation a Big Problem for Banks?
When a customer cancels an EMI after the offer has been availed, it creates multiple problems for the bank:
1. Efficiency Gets Disturbed
Banks calculate efficiency based on the final settled amount. When EMIs are cancelled, the actual spends reduce, which lowers the overall efficiency of the offer.
2. IRR Gets Impacted
Banks expect a certain return (IRR) from EMI offers. High cancellations reduce the actual interest or subvention recovery, leading to lower-than-expected IRR.
3. Wastage of Discount/Subvention
The bank has already given a discount or subvention to run the offer. If the customer cancels the EMI later, the bank loses that money without getting the expected long-term benefit.
4. Portfolio Quality Issues
High cancellation rates indicate that customers are not truly committed to the purchase or are using EMI just to take advantage of the offer. This affects the overall quality of the bank’s EMI portfolio.
5. Operational Cost Increases
Every cancellation requires additional work in terms of reversal, reconciliation, and customer communication. This increases the bank’s operational cost.
What is the Ideal EMI Cancellation Rate?
While there is no fixed industry standard, most banks consider the following as a benchmark:
- Ideal Cancellation Rate: Below 8–10% of total EMI transactions availed under an offer.
- Acceptable Range: 10–15%
- High Risk Zone: Above 15–18%
Offers with cancellation rates above 15% are usually considered inefficient, and banks try to investigate the reasons behind such high cancellations.
What Do Banks Do to Reduce EMI Cancellations?
Banks take several measures to control high EMI cancellations after running offer campaigns:
1. Better Customer Communication
Banks send clear communication to customers about the EMI terms, cancellation policy, and consequences of cancelling after availing the offer.
2. Cooling Period Restrictions
Some banks put a minimum holding period (for example, 15–30 days) before which the customer cannot cancel the EMI without penalty.
3. Working Closely with Brands and Platforms
Banks coordinate with brands and platforms (like Amazon APIPL) to ensure that only genuine buyers are allowed to avail the EMI offer. Sometimes, they ask platforms to block cancellations for a certain period.
4. Offer Design Improvements
Banks design offers in such a way that customers have to pay at least a small amount upfront (even in Zero DP offers, sometimes a token amount is collected). This increases customer commitment.
5. Monitoring and Analytics
Banks track cancellation patterns at a brand and category level. If a particular brand or category shows consistently high cancellations, they either reduce focus on that brand or change the offer structure.
Role of Brands and Platforms in Managing Cancellations
High EMI cancellations also affect brands and platforms. Therefore, many platforms (especially large ones like Amazon) work closely with banks to reduce cancellations by:
- Improving product quality and delivery timelines
- Reducing fake orders and fraudulent transactions
- Sharing cancellation data with banks for better decision-making
- Creating stricter return and cancellation policies during offer periods
Key Takeaway
Reconciliation and EMI cancellation are two of the most critical operational aspects of any bank offer. High cancellations disturb efficiency, reduce IRR, and increase operational costs for banks. Most banks target to keep cancellation rates below 10–12%. Both banks and platforms work together to reduce cancellations through better offer design, customer communication, and stricter policies.
Note: In the next (and final) lesson, we will cover cross-sell, personalization, and how banks use data to improve offer performance and customer lifetime value.
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