How Does Cash on Delivery (COD) Dominate Indian E-Commerce?

1) Introduction to COD domination in the Indian Marketplace

Possibly one of the most incredible leaps in the field of e-commerce, COD's leverage over online payment methods in the Indian marketplace is truly admirable. The traditional business landscape of India is built on a foundation of shoppers who aren't well versed with the nuances of online payment. Cash on Delivery is a payment method wherein they have the liberty of paying for their orders after delivery, making it a popular choice for the country’s broad base of non-tech-savvy customers.

COD is a service that enables companies to provide services to even those without a bank account. While this may be a boon to the buyers, especially those who do not live in the automated worlds of metropolitan areas, COD puts the onus of the product sale on the sellers. They have to ship the purchase without the security of knowing whether the buyer will accept the order or not, incurring extra costs for them.

2) Why do Indians prefer COD?

The pandemic forced the world to switch to online transactions and payment methods to promote a zero-touch retail model. However, COD continues to be one of the most preferred modes of payment in Southeast Asia.

In 2020 itself, when the threat of Coronavirus was at its zenith, nearly two-thirds of all online purchases were paid for in cash, according to a study by CMS Infosystems. The reasons for this phenomenon are unique to the subcontinent, owing to what can be called the ‘Indian e-commerce experience’. 

2.1) The Threat of Online Scams 

One of the most significant advantages of COD is the sense of security it provides the customers. Buyers do not have to input any credit card data or pay for the items before delivery, assuring them that they would not be cheated out of their money.

2.2) Hard-cash Driven Economy 

Even though the pandemic spurred the wave of digitization across the country, many regions still don't have access to a stable internet connection or secure online transaction methods. As a result, 90% of all transactions in the hinterland occur through COD.

2.3) Shortage of the Viable Payment Gateways

Another addition to the list for preferring COD is the lack of secure payment gateways available to the people, especially those from rural areas. Moreover, many fear online transactions would increase their tax liabilities and lead to increased expenditure. 

2.4) Product Satisfaction before Payment

Buyers are more likely to make a purchase when they have the guarantee of checking the product quality before they pay for it. Often, when customers aren't satisfied with their COD order, they choose to return it without risking the problems associated with online refunds and returns.

3) Impact of COD on supply chain

Cash on Delivery service necessitates the establishment of a viable accounting system for the transfer of payments. The money collected by delivery partners upon delivery is accrued by shipping companies which then transfer the money to the businesses through periodic billing cycles.

This process of COD reconciliation is essential to balance the books of the company. They have to maintain a sturdy accounting network to ensure minimal loss of money during its transfer.

4) What does offering COD mean for your business?

The Indian preference for COD over other modes of the transaction means that offering COD service to your business will have definite consequences on your profits, some good, some bad. Before providing your customers with this luxury, it is crucial to weigh the pros and cons in favour of your business.

4.1) Disadvantages 

a) Security Issues 

When offering COD, the entire cost of the product, as well as its delivery, is borne by the seller. This increases the risk of loss if an item gets lost or stolen after being shipped.

b) Loss of Time and Resources 

Another issue often faced by suppliers is caused by delays in the delivery process of all goods because delivery partners are expected to collect the payment on delivery. This cash is then consolidated by different delivery systems, which transfer this money to the business. Not only is the method more manual labour-intensive, but it also invites the risk of discrepancies in the COD reconciliation process.

c) Fear of Increased RTO%

Since buyers don't necessarily commit to accepting the order at the time of purchase, there is a higher likelihood of customers refusing the delivery. An increased RTO% leads to losses that the owner ultimately incurs in terms of shipping fees and other expenses.

4.2) Advantages

a) Expansion of Customer Base 

In a country like India, offering COD not only provides your customers with a sense of security but allows you to expand your company's reach to the interiors of the land. Buyers from any region can order online, even if they do not have a bank account, allowing you to offer your products to a much wider audience. 

b) Gaining Trust 

When your business offers quality products with COD, your customers are more likely to order again due to your excellent credit history. Furthermore, this also increases positive word of mouth about your company, increasing your reach.

c) Improved Cash Flow

Since COD reconciliation requires that money be transferred to the businesses periodically, most delivery partners try to keep a shorter payment cycle for COD orders. This induces a robust flow of cash from the buyers to the sellers. 

5) Conclusion

Cash on Delivery is a service that can easily be integrated into your business model. However, there are a myriad of factors that need to be considered before providing your customers with this option. It is imperative, then, to know about the various facets of COD and the effect it might have on your company. Moreover, the delivery system you choose also plays an important factor. COD as a mode of payment has a high scope for engineering profits, and you must keep your business in tune with these developments to further your brand’s professional goals.

6) FAQs

6.1) Has the Covid-19 pandemic facilitated the death of COD service?

Even though cash payments did take a hit due to the spread of the virus, with e-commerce giants suspending COD services, it remains one of the most preferred modes of payment. The initial fear of contracting COVID was followed by a period of time marked by a high rate of COD orders in comparison to pre-paid orders.

6.2) Is it safe to offer COD on your products?

While the security issues are a cause of concern for sellers, they can take measures to ensure the safety of items during delivery. You should ensure that the delivery service you use is reliable and transparent about the process. Ask your shipping partners to provide tracking IDs for your shipments and update you at each delivery step. Stay in touch with them and contact them immediately in case of any discrepancy.

6.3) How to increase your profits while offering COD?

Establish a loyal customer base by offering them quality products and customer service. Buyers are less likely to cancel their order if your company keeps them in the loop by providing regular updates by email, SMS, and sometimes even phone calls. Higher brand loyalty will decrease your RTO% and ensure judicious use of your resources.