Is CoD killing Electronic Payments? – Part1

Is CoD killing Electronic Payments? – Part1

In India, Flipkart started operating in 2007 and till then e-commerce market started expanding. But still it is at its foetal stage. Being an online book seller, the company started offering its customers online transaction through e-payments. But in a bid to reach more customers, Flipkart took a step ahead and launched Cash-on-Delivery (CoD) service. It paid off and the result was phenomenal. Since its launch, CoD showed phenomenal result enticed the customers from rural areas, which in turn, contributed to 30 percent of its sales in just two months. And, this resulted into getting 80% of customers of overall COD orders for Flipkart.

As compared to developed nations, e-commerce in India is much more dependent on CoD. And, the key reason behind this is – it brings trust factor for customers. Today online payments have become the key source among offline sellers, but still customer’s concerns on revealing financial details persists.

In the last few years, we have seen have seen discoveries and innovations like mobile wallets and card-on-delivery, but due to poor implementation and complexities in the system have muffled their growth.

So, we can say that CoD is declining, let’s understand why and how:

Cash on Delivery is Becoming Convenience-on-Delivery

There is no denying in the fact that CoD has become the key reason why e-commerce is expanding in few countries like India, especially when we talk for high value transactions. Even for Flipkart too, 72 % of orders from metros are CoD, and 90 % are for Tier II cities. In fact, Delhi, Bengaluru, Hyderabad, Kolkata, Chennai, Mumbai, Pune, Thane, Patna and Coimbatore are the ones that provide 35 percent of its overall CoD volume. According to Neeraj Aggarwal, Vice President (Last Mile), Flipkart – “As the customer base has expanded in smaller towns, the ones shifting to other payments modes in metros have neutralized for the difference.”

From Logistics perspective

Today E-commerce companies pay logistics surcharges for CoD – for around Rs 40 per delivery. Moreover, there are insurance and cash-handling costs, too.  Logistics giants like Gojavas and Ecom Express find 70 % CoD in the shipments they manage. However, CoD is a huge portion of their revenue. And, logistics players also agree that online payment is suitable for the entire ecosystem, which in turn, means that faster delivery with lesser number of attempts.

However, fewer websites offer card-on-delivery option, which offers customers to swipe their credit or debit cards after the delivery, but it’s not much popular yet. According to Shobhit Jain, Head of Express Delivery Business, Gojavas, – “COD or Cash on delivery is exponentially decreasing because today less than one percent of the eCommerce websites do not even mention it as an option.”

As free shipping is not much sustainable, if we see in long term. While the cost of delivering a package in India is the same as in other markets. And, that’s about $2—the average selling price is much higher there. Since inception, it’s been observed that Indian consumers are more likely to be interested in an online purchase when there is a promise of free delivery. While Shobhith believes that a fine balance could be created by reducing the costs, which can be done by lengthening the delivery period.

This is why CoD should die?

Today Online sellers are struggling due to CoD. According to Suraj Vazirani, an online seller – Since marketplaces do not offer an option to the seller to pick up only the prepaid orders, they need to deal with the CoD returns. He added that – “What a customer returns is barely checked by the pick-up guys and before it reaches to the store, the customer has been given the refund. Stores just charge the sellers one percent of the total MRP, which includes the charges for pick and pack, too along-with the other logistics and handling charges. And, this entire amount gets invested on the product that is not sold,” Suraj says.

COD comes with another challenge. And, that’s a vicious cycle. Most of the times Customer does not present at home to receive the order, which in turn, entails multiple attempts to deliver the product by the logistics player to make just one delivery. Hence the logistics pricing has become a function of the client’s business in prepaid and CoD, both.

According to reports, for every successful CoD delivery, the average number of attempts is 1.24, which means, it has to invest around 24 percent extra manpower in the last-mile delivery for all the CoD orders. Ecom Express noticed that as compared to prepaid returns, CoD returns are 30-percent more, especially in Tier II cities.  According to T.A. Krishnan, Co-founder, Ecom Express – “Customers are there extremely guarded with the details for net banking”.