New guidelines do not allow related parties or associated enterprises to sell in the same marketplace
The proposed Consumer Protection (e-commerce) Rules, 2020 could impact super app strategies of many companies as rules on related parties, data sharing and cross-selling clauses could become a major hurdle.
According to Vaibhav Kakkar, Partner, Saraf And Partners, a super app will also be considered an e-commerce marketplace. The only difference is that this will be a common app integrating other individual apps and legally separate entities, each providing different services.
“The new guidelines do not allow related parties or associated enterprises to sell in the marketplace. The threshold (for stake holding) for an associated enterprise is as low as 5 per cent. While this change on its own does not have any impact on the consumer, it will create complications for various businesses,” Amarjeet Singh, Partner, KPMG in India told BusinessLine.
For companies like Tata Digital – which has actively acquired controlling stakes in start-ups like 1MG, BigBasket and Curefit among others to build its super app services – this clause leaves several uncertainties and complexities. Separately, Tata’s other entities such as Tata Consumer Products, which has a 50:50 joint venture with Starbucks, wouldn’t be allowed to sell their merchandise and products through its app.
All Tata manufactured-products from Tata Salt to a Voltas’ AC could become its ‘private labels’ if sold online through its marketplace.
There are restrictions on cross-selling of services or products to the consumer too. Through cross-selling, e-commerce websites add related product suggestions to check out lists to increase revenue per order. “The disclosures and compliances required for cross-selling will make it difficult for e-commerce companies to increase the basket sizes of sale,” Singh said.
“When we talk about some conglomerates looking to launch super apps and wanting to sell various goods through one platform, if these guidelines come in their current format, this will require them to rejig the strategy,” he added.
“The proposed draft amendments to e-commerce rules tend to introduce disruptive measures which, if enacted in current form, would require existing marketplace entities to substantially restructure their business model and alter their current business practices. The ambit of proposed restrictions is also very wide,” Kakkar told BusinessLine.
“For instance, the definition of e-commerce entities has now been made very expansive whereas restrictions are also placed upon ‘associated enterprises’ which are defined broadly with a low threshold of 10 per cent compared to a 26 per cent threshold under other laws including FDI Policy. While measures for ensuring adequate hygiene levels in conduct of marketplace business have been introduced under the FDI Policy in the past, it is worth noting that this time the Government is proposing to introduce restrictions under consumer protection laws,” he added.
The FDI Policy issue will directly impact companies like Amazon and Flipkart which are foreign conglomerate-owned entities. Amazon recently ended its long-standing joint venture with Narayana Murthy’s Catamaran Ventures, that ran Amazon’s largest seller Cloudtail.
Ankur Pahwa, e-Commerce and Consumer Internet Leader, EY India concurred. “There appears to be some overlap or over-regulation regarding the draft e-commerce rules around matters which are already being looked at by other regulators or purported to be addressed by other laws or regulations,” he told BusinessLine.
Restrictions on data sharing
The e-commerce industry will be further weakened when they won’t be allowed to share data within sister entities, which forms the backbone of their business in many ways.
“Typically, with the consent of users, the e-commerce entity should be allowed to share data with sister companies. As long as the consumer is giving consent for such data sharing, the same is not likely to affect consumer interests. However, given the nature of proposed restrictions under draft e-commerce rules concerning data protection, there would be an overlap with the Personal Data Protection Bill which is being deliberated separately,” Kakkar said.
Singh added, “For conglomerates which have separate data analytics setups or separate fulfilment company, the new guidelines will be challenging. This issue needs clarity and rationalisation.”
Pahwa believes that while the reasoning behind rules is in the right place, there are gaps around how the proposals would be implemented on-the-ground. The compliance and registration burden proposed to be cast upon e-commerce entities could be a limiting factor for smaller home-grown players.
“Additionally, aspects relating to ‘fall back liability’, ‘flash sale’, and ‘misrepresentation’ appear to be very cumbersome for e-commerce entities (especially around ‘flash sale’ where there is no similar limitation per se for businesses operating under offline / ‘brick and mortar’ models),” he added.