Why Your 50 Percent Online Discount Is Limited to Rs. 150

We've all complained about it in the past - an e-commerce company is offering huge discounts, saying 50 percent off in its ads, but when you go to place your order, you notice the fine print - the deal isn't really a steal and it feels like you're being cheated.

On Paytm, you'll see ads promising 30 percent cashback on a massage chair priced at Rs. 84,000. That's a huge discount - but then you choose the coupon, and you see the fine print - maximum cash back is Rs. 1,500, so you're getting just under 2 percent off.

Foodpanda is particularly annoying - it offers 50 percent off coupons, and in the fine print, tells you that the minimum order amount is Rs. 300, and the maximum discount is Rs. 150. In other words, it's not 50 percent off, at all. It's a fixed Rs. 150 off, with a minimum order of Rs. 300.

It's still a deal and for customers, it's appealing nonetheless, but why are these companies, which are funded by global giants and surely can afford to give out discounts to customers, right?

Except that customers aren't the only ones who take advantage of these deals, and the services that the e-commerce websites rely on (remember, they don't own any restaurant themselves, they're just the middlemen) are more than happy to scam the businesses. A deeply revealing report in Mint looked at the problems that plague Foodpanda today, and one of the issues it highlights is how restaurants found a quick way to turn a huge profit on Foodpanda's 50 percent discount vouchers, with zero effort.

For a little cash investment, and zero effort, restaurants were able to make lakhs in profit. Here's how it worked, as per Mint:

Let's say you are a restaurant. Now, place 10 orders using 10 names or even the same name, each for Rs. 300. Every order is a takeaway. Pay online using the BOGO voucher, a campaign (Buy One Get One) run by Foodpanda. So for Rs. 300, get Rs. 300 free. So for a Rs. 600 order, you paid only Rs. 300. How much does Foodpanda have to return to you, the restaurant? Rs. 600. After deducting 12 percent as its cut, Rs. 528. How much did you make in the process? Rs. 228 . Did you have to deliver that order? Nope. So, a straight profit of Rs. 228.

Now, let's say you processed 100 such orders a day. For a month. Total investment: Rs. 9 lakh. Reimbursed by Foodpanda: Rs. 15.84 lakh. Your total gain, by just processing fake orders: Rs. 6.84 lakh.

In other words, a restaurant would be able to make a profit of Rs. 7 lakh per month, without cooking a single dish, or sending out a single delivery boy. All paid for by Foodpanda's investors.

This isn't new either - people have experienced similar misuse in the early days of online retail in India. For example, sellers would allegedly supply products to Flipkart, and then purchase them back from Flipkart at a highly discounted rate, and then sell the same items back to Flipkart, since they were in demand; making a happy circle of profit. In time, e-commerce firms evolved to prevent this kind of misuse through better logistics, and fraud detection systems built into their platforms, but Foodpanda was - according to the Mint story - more focused on showing order numbers to its investors, to actually crack down on fraud, and abuse of its processes.

While Foodpanda was being scammed though, what makes its particular case more worrying is that the report suggests the company seems to have been mismanaged in many ways. Apart from fake orders, the company also had many fake restaurants in its database, and many of the contracts were allegedly handed out through nepotism and without proper processes. If the details in the report are to be believed, these are very serious issues, which could well become a bigger problem for Foodpanda than fraud.

However, fraud is a common problem that all e-commerce firms need to deal with, particularly as they are racing towards building up the maximum number of users with incentive programs. Uber drivers will happily tell you that they book each-others' cabs to meet the daily incentive numbers that are worth a lot more than a wasted booking. Online retail has been through a lot of fraud and keeps evolving as a result. The new crop of delivery based services, whether it is for food, or groceries, or services, are similarly going to have to evolve.