Will 'Cash On Delivery Last'?

E-commerce companies are rushing to offer cash-on-delivery to their customers, but how long will the trend last?

Published: Jan 31, 2012
Will 'Cash On Delivery Last'?
Image: Amit Verma

In the late 1990s, during the good old days of dotcom 1.0, many browsing centres across the country tried to marry email with snail mail. They targeted old people who were comfortable reading on paper, but whose children preferred the speed of email. For a fee, these small-time entrepreneurs took printouts of email and delivered the letters home. But people were worried about privacy and the experiment died soon.

A similar attempt to straddle two worlds is now happening with India’s e-commerce Web sites. For the last one year, the basic idea of slicing an online transaction into an offline component has been gaining ground in the form of cash-on-delivery and other offline payment options. Many e-commerce firms, including Flipkart, Rediff, Infibeam, Yatra, Cleartrip and Makemytrip, offer cash-on-delivery options. Flipkart’s COO and co-founder Binny Bansal says cash-on-delivery drives over half its sales. Most players have reported a figure between 40 and 60 percent.  

This trend has led to new business models. Sify Technologies turned its network of browsing centres into points where customers do e-commerce transactions and pay cash offline. Natesh Mani, president, commercial and consumer business, Sify, says that of the million transactions at its mylife centres, 90 percent involved offline payments. Gharpay, set up last year in Hyderabad, already does about Rs. 1.5 crore worth of cash collections a month.

But how long will this last? After all, for a retailer, this option adds a level of complexity and raises costs. Couriers charge a transaction fee plus a cut (of 1-3 percent) on the value of cash handled. Many, including Flipkart and Infibeam, don’t pass on the costs to customers. A bigger pain for the e-commerce firms is the return of goods. While companies declined to give numbers, estimates put it at 30-40 percent.

Customers’ discomfort with using cards online is one of the big drivers of offline payments. That will change as they get more used to transacting online. Besides, as Sulekha Chairman Param Parameswaran points out, “Credit card issuers will seek to differentiate themselves by offering fraud protection and other conveniences.”

It’s true that online payments today come with pain points such as having to enter too many details every time one has to make a payment. All these are likely to improve over time. Right now, the business logic for offering offline payments looks solid. Shankar Prasad of redbus.in points out that 90 percent of all bus ticketing happen offline. It’s about behaviour, and the only way to tap that market is by offering cash-on-delivery.  

Redbus collects a premium from the users choosing that option.  Abhishek Nayak, CEO of Gharpay, is confident about cash. “China has had COD [cash-on–delivery] for the last 10 years, and even today a big chunk of e-commerce there happens through cash. I think that will be the case in India too,” he says.

(This story appears in the 03 February, 2012 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Shrianta Jain

    it should last. we should have faith in our customer

    on Nov 22, 2014
  • Abhinav Sharma

    COD , though is a trouble for the big web portals on one hand , but is the basic necessity for the start ups.. people in india usually do not make online payment on new sites and favor the COD option. more over indian audience still stores cash and are happy with the traditional cash payment method.

    on May 31, 2013
  • Tony

    Banks do not issue credit cards not even with low credit limits like 5000-10000. Transaction with direct debit is risky for consumers in case of dispute. As a consumer COD is best.

    on Jan 11, 2013
  • Gowrishankar

    Companies see this as a customer acquisition cost and in the long run hope that the life time value of the customer offsets this initial cost. With only a fraction of the 100 million willing to make an online transaction. Anything that will convert the remaining skeptics is necessary. The hope is, once they are comfortable with dealing with an ecommerce firm using cod, they would eventually be comfotable transacting online.

    on Jun 27, 2012
  • Rohit Agarwal

    While I don't have the numbers with me, from your article it doesn't seems that COD should cost more unless "return of goods" is high. Courier companies markup of 1-3% is similar to the ones charged by Credit Card companies. The only difference is return of goods cost the companies money. But again this can be tackled over a period of time with the companies developing a database about the users where return of goods are high. Considering the credit card penetration in the country is not high, overall in the long term - 10 year horizon COD seems to be a better option than credit card.

    on Feb 3, 2012
    • Ramnath

      Rohit, thanks for taking time to comment. The 1-3% that courier companies charge is addition to the transaction cost/fixed charges that can go upto Rs 150. Also, consider the time cash takes to reach you - it's in order of days, and that can affect your cash flow. But the most worrying part, like you rightly pointed out, is the high returns. In an ideal world, there shouldn't be high returns just because it's COD, but the e-commerce companies i spoke to said the returns are much higher. It's not just about credit card penetration, it's also about how comfortable they feel when they give credit card details online. One company i spoke to said they are planning to give a POS-like device to the collecting agents to tap these customers, while avoiding the some other complications of cash transactions.

      on Feb 3, 2012
  • Rajeev

    Online payment doesn't come free either. CCAvenues has hefty upfront fees and charges upto 3 percent per transaction.

    on Jan 31, 2012
    • Ramnath

      You are right Rajeev. Nothing comes free. But, COD costs more.

      on Feb 1, 2012
      • Rajeev

        Reading your article one gets the assumption that you think COD costs money, while online payment is free. So I just pointed it out. It might be true that cash on delivery costs more than online payment. But as you point out, it is not a big deal for flipkart or any other Indian ecommerce player. Since they have both mechanisms in place, they are in position to capture both users, those who want cash on delivery and those who want online payment. I run a small website and many people prefer cash on delivery, it is just the way it is. And it helps our margins too, since there is no payment involved to a third party entity. I do the delivery myself.

        on Feb 1, 2012
  • Mayank Dhingra

    Hi, I too am skeptical about the future of COD. Here's a post I wrote a couple weeks back on the same topic http://mayank.name/2011/12/18/cod-an-unnecessary-evil/

    on Jan 31, 2012
    • Ramnath

      Great post Mayank. (Loved your blog too). Thanks for sharing the link.

      on Feb 1, 2012
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