product, security, user-engagementThere are businesses which provide books, electronic gadgets, musical instruments, apparels, etc. They generally charge a security deposit less than the cost of the product rented. There is a possibility a customer won’t return a rented product. How do rental businesses avoid such theft?
Loss is a common part of life for any business, rental or otherwise. Any store that puts products on shelves can expect some (hopefully small) amount to be shoplifted by a few dishonest persons. What allows businesses to succeed is the relatively large percentage of people who transact honestly without stealing. Unfortunately, a business’s prices will have to reflect an allowance for theft so it’s the good people who end up paying for the stolen products. Let me explain how this works.
Specific to rental businesses, each product rental should have a small amount factored into the price to pay for lost or stolen property. For example, if a business wants to rent widgets for $100 and they expect one in twenty to be stolen, they might add $5 (1/20 * $100) to the price to cover the stolen goods. This would make the rental price $105 ($100 + $5). The $5 represents a basic (self) insurance premium. Alternatively, a rental business might find another party (probably an insurance company) who will cover the losses. The insurance company might be able to offer a better value (let’s say $4 premium per widget rental) because they might be better at going after the thieves in the legal system. In a lot of ways, buying insurance is like hiring a legal team to handle a very limited set of situations very well.
Finally, as mentioned by Dawny33, rental companies have a customer’s information and can pursue legal action themselves or they might report negatively on a person’s pubic records (credit report, etc). This negative reporting and legal action can end up warning other rental businesses about this customer. In the same way, positive reporting can encourage a rental company to deal good customers. The better a rental company can screen their customers, the less they have to set aside for loss, the more competitive (and successful) they can be in the marketplace.
Renting startups like car renting, furniture renting rely on more than just the security amount for the ensuring and preventing fraud.
They take the personal details of the user, like a government issued ID cards, etc. If noticed keenly, renting startups tend to reduce the security deposit amount for trusted users or for users who have been customers for a decent amount of time (the time frame depends on the product, the startup and the law, sometimes).
And, they have a very strong legal team and legal support network for identifying and battling fraud.
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