Paytm's "Cancel Protect" : An Insurance but not an Insurance Product


All of know that we change our minds pretty often. We all know that changing a decision has some cost associated with it. But the “cancel protect” product introduced by #Paytm for its movie ticket bookings is really a good innovation that was needed.

What is it

Paytm charges some 15% of the movie ticket price to allow you 100% refund on your movie tickets. The internet handling charges are not refunded (~12%). You are Opted in by default while making payments.

Paytm promises that if you book a movie ticket and later on change your mind, you will receive the entire movie ticket price refunded.

Why is it smart

  1. Its literally free money : Due to the default Opt-in.It’s literally free 15% for paytm. The number of cancellations will stabilize. There is no additional setup costs or capital. Its just Math and contract with movies. May be contract with theaters is not required if the Math is strong in you.
  2. It can be modelled to produce profitability : After some time of crunching numbers, Paytm can increase or decrease the price based on math. The number of people who are buying the cancel protect regularly can be easily segmented as risk averse and other products pitched. The price of “Cancel protect” can be increased for people who have availed it once. All this seems familiar, right? because…
  3. It’s universal and can be extended to anything : The brilliance of a “Cancel Protect” like product is that its an #insurance without being called #insurance. This can be extended to anything where there is time lag between purchase and consumption and you can change your mind. It can be done for your e-commerce orders, your ubers, your digital movies everything… Virtually anywhere you spend money, you can be charged small money to allow you to change your decision and allow you flexibility.
  4. Instead of penalizing you it pre-empts and so is good for satisfaction surveys: If your uber has arrived and you cancel, uber charges a penalty. But imagine if on every uber booking, uber charged you a small 1% cancel protect? Over time you would pay much more than actual cancellations. Any business will build that math into the product. But you will feel happy and empowered that you were allowed to change your mind.
  5. Its habit forming: Once you have received your refund after a cancellation, you are addicted. You will not seem to notice that you lost 100 INR in a 500 INR transaction. In a previous world, once you lost 500 Rupees worth of movie watching due to poor planning, you would have taken extra precautions. But now, once you have been taught that its okay to not being planned if you are ready to part with X rupees has strong stickiness.
  6. Unbundled customer service: How many times has a customer called about returns? And how many times have you tried to explain that it’s not possible. If a customer ends up calling, it’s very difficult to make sure that they leave happy. But what this product does is that it Unbundles one part of the promised service, that is product returns. So now, if the customer wants to return something they can as they are paying extra for that. Profitability is not an issue, it has been taken care of by unbundling. Very similar to what airlines did by charging you premium prices for better seats. They unbundled.

What next?

I think that a lot of ecommerce products in this price sensitive country can do well with a “Cancel protect” kind of product. I also know that this is going to grow, get copied and start popping up everywhere. The only challenge is that it looks and works like an insurance and therefore,

  1. Should insurance companies create such a product for B2B or a B2C consumption?
  2. Can this product face policy challenge as usually if something looks like a duck and walks like a duck and feels like a duck, it is a duck. And insurance is a regulated industry in India. Of Course this is an innovation in a corner of a giant platform, but if it catches on, i am sure it will get noticed more.

If (2) Above faces no regulatory hurdle, then i think this can prove to be the thin edge of the wedge to completely disrupt the insurance industry. How is for you and the next generation of entrepreneurs to think about.

Views expressed here are my own and don’t reflect the views of any of my employers, present or past (reproduced from here).