Brainstorm Solutions: How to Prevent Buyers/Sellers from Regressing to Informal Credit? (Trade Finance Platform Case Study) "i will not promote"

A startup partnered with an NBFC to formalize informal trade credit between sellers and buyers. Initially, 8,000 sellers and 39,000 buyers engaged in peer-to-peer trust based credit: sellers extended informal credit on sales to buyers, creating trust but lacking structure. **The Intervention**: The startup introduced a platform where: * Sellers received **instant payment** for goods/services. * Buyers gained access to a **30-day interest-free credit period**. The model prioritized onboarding sellers first (due to the instant payment incentive), with buyers joining through seller **The Unintended Consequence**: Over time, buyers **preferred transacting with sellers who still offered informal credit** outside the platform. Sellers reliant on the platform began losing business, forcing many to revert to informal credit to retain buyers. This led to a systemic shift **back to unstructured lending**, eroding the platform’s value. Reason : A buyer taking informal credit from a seller faces no risk. He can promise to pay in 20 days, but even if he fails to do so, there are no consequences for him. He can freely take informal credit from another seller or even secure a bank loan. However, if a platform like ours exists in the market, a buyer who defaults will face real consequences. Their CIBIL score will be impacted, making it harder to get a bank loan. Additionally, if other sellers use our platform to provide credit, they will be unable to extend further credit to a buyer who has already defaulted. This system effectively penalizes bad behavior, which is why . **The Challenge**: How can such platforms **prevent regression to informal credit** while retaining their value proposition? * Can buyer incentives be redesigned without compromising seller benefits? * How might trust and flexibility in informal systems be replicated in formal structures? * What safeguards or behavioral nudges could keep both parties engaged on the platform? **Discuss**: What strategies would *you* propose to resolve this tension between formal systems and informal preferences? 💬