Agency or reseller: The role of supply chain finance in deciding E-commerce channel under product return risk

E-commerce platforms connect the product manufacturers with the customers by operating either as a reseller or as an agency channel. A financially constrained manufacturer (FCM) selling through these platforms must depend on either (i) bank credit financing (BCF), (ii) platform credit financing (PCF), or (iii) equity financing (FCF) by a fin-tech firm for financial viability. The financial risk increases due to higher product returns through an E-commerce platform. This paper evaluates the selection of supply chain channels by the platform and financial offerings by the stakeholders while facing the risk of product return. We show that, in the reseller channel, PCF is a win-win for both the FCM and the platform. However, the platform’s strategy is to offer PCF in the agency channel, which may not be optimal for FCM. Interestingly, when the platform offers PCF in the agency channel, a higher platform fee motivates it to lower the interest rate, leading to the FCM increasing the order quantity. When the share-to-equity ratio is moderate, FCM opts for FCF over PCF. Depending on the platform fee and the product return risk, the platform might prefer FCF, resulting in a win-win-win for the FCM, fin-tech firm, and the platform. Like Amazon, under certain conditions, the platform can move away from a pure agency channel and charge a fixed closing fee, increasing the zone of Pareto optimality for the e-commerce supply chain. Lastly, we find that the selection of agency channel positively contributes to the consumer surplus and total social welfare.