Cash On Delivery: E-Commerce’s pain point

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Shruti Barrot’s cash on delivery order, a white shirt, has arrived and the delivery executive is waiting at the door. However, Shruti had happened upon a cheaper, smarter piece, which fit her during her mall visit a day earlier and now she didn’t need this anymore. To avoid the embarrassment of facing the delivery executive, she decided – since she had nothing to lose – to just let him keep ringing the doorbell till he got tired of waiting and walked away. Opening the door would have also meant the long, tedious process of cancelling the order and putting in a return request and the bet option here was just letting the executive cancel the delivery.

As easy as it sounded for Shruti, the fact is that this entire process cost the company a few hundred rupees. This is wrong on so many levels but the trend of Cash on Delivery (COD), introduced in the industry by e-commerce major Flipkart, has made online shoppers irresponsible. Unfortunately, to stay in the game, the majority of online retailers have no choice but to pamper their customers with this payment option.

COD – the concept that began off being a boon and then quickly turned into a bane for a lot of online retailers – is here to say. However, if given a choice, most online players would want to do away with it (some of them have been brave enough to do it already), but none of the bigger players, including Amazon, Flipkart, Myntra, have abolished the practice from their sites yet.

However, most big players are trying to their bit to do away with COD as much as possible, trying to dissuade people from opting for the COD mode. E-commerce biggies like Amazon, Flipkart, BigBasket, Grofers etc. have started offering the ‘Card on Delivery’ option. Delivery agents are incentivised to persuade people opting to pay in cash to pay using their card at the time of accepting the delivery. A vast majority of these players have also initiated the wallet system culture where the customer is rewarded with hefty cashbacks on loading his wallet for a particular amount. The shopping amount then is deducted from the shopper’s wallet thus eventually taking them away from opting for the COD mode of payment.

Flipkart has recently introduced the Flipkart Pay Later scheme wherein one can checkout instantly without having to pay immediately. The bills can be settled by the 10th of every month.

To tackle the issue of change to be tendered to the customer in case of COD mode, Amazon has decided that the change amount will be credited to the customer’s Amazon Pay Wallet, nudging consumers into using other methods of payment. IMAGES Retail spoke with some prominent e-commerce players in India on the concept of COD, and what it means for them in terms of business and customer acquisition.

According to Dipanjan Purkayastha, Chief Executive Officer – HyperXchange, COD is a necessary evil of the e-commerce industry. “The concept was launched by Flipkart in its early growth days to build trust among consumers and it resulted in quick and massive adoption of online shopping in India. To that end, COD is a phenomenon that is quite unique to the Indian e-commerce space – we do not see the prevalence of this in other leading global economies. However, while COD brought instant growth to the industry, it also brought in a host of challenges. As such, most online retailers today are working to reduce their COD exposure, while also understanding that completely moving away from COD isn’t an option because it could completely erode their user base.”

Citing the evolution of payment modes in India in relation to penetration of e-commerce, Alok Chawla, Co-Founder – shares, “In the early days of e-commerce, the buyers were primarily from Tier 1 cities, and hence more aware of online payments and many owned credit/debit cards. Online payment was the only payment option for e-commerce transactions. Flipkart changed the rules of the game by introducing COD on a massive scale in 2010. As e-commerce penetrates into small towns and villages due to access to high-speed 4G internet (thanks to Jio) we have an entirely new set of people transacting online, who have no access to credit and debit cards, and even if they do, they would be extremely scared to use it online due to fraud concerns.”

Vincent Dominic Braganza, Chief Operating Officer, Melorra adds, “We have traditionally been a ‘cash and carry’ country. Indian consumers are still making about 60 percent to 65 percent of their e-commerce payments through the COD option.” Considering the brand is into selling jewellery, it is surprising that despite the ticket size running into a thousands, 82 percent of their customers still opt for COD. However, Braganza says that the use of the ‘Card on Delivery’ is picking up now.

According to Siddhant Wangdi, Founder, a lot has changed in the payments space especially in e-commerce. “What was thought to be a completely cash and trial driven market has changed. The emergence of simple, easy to use payment options has changed the dynamics to a large extent. We are seeing a lot of options and companies coming in this space and competing with each other in terms of commission structures, payment periods and cashback offers.”

His website offers 3 payment options – COD, online payment and wallet payment, and Wangdi observes that a lot of first time users prefer the COD mode.

“I think it’s all about having a good first time experience. The next time they order, these people then use more hassle free payment methods like online transactions. This also minimises issues like keeping exact amount ready for the delivery agent or the need to stay at home to receive delivery.”

The COD Customer

The very basis of COD as an option came into being to instil trust in the customer thus enabling them to receive and check out the product and then pay. However, industry leaders say that trust is not the only issue. A majority of consumers have been shopping online since the advent of online shopping in India and still prefer the COD option.

Chirag Tekchandaney, Business Head, B Label shares an interesting insight, “As per our historical data, we have observed that orders with cart values worth `5000 and above are generally CODs. However, carts with smaller values are paid for online. On an average out of every five orders, three are paid online and the remaining two are COD. Two of our biggest orders with an AOV worth 20,000 + have been COD.”

Tekchandaney further observes that since June 2019, the team at B Label has been witnessing a steady rise in payments by net banking. People have also started opting for online wallets and other modes of payment to pay in advance for their purchase.

Purkayastha suggests that the value of merchandise drives choice of payment mode. “People prefer paying COD or with EMI for high-value items. The associated risk of COD is also precisely the reason online sellers do not prefer giving that option for high-value items.This results in a scenario where mainstream online shopping typically happens in the budget segment, where there are COD options available.

The price points of what consumers consider to be budget changes with the product, so there are no universal price points. For example, a budget cosmetics item could be priced very differently from a budget smartphone, but they would both trigger the customer to opt for COD. Empirically speaking, customers typically prefer COD for items over `2000,” he says.

Yash Kotak, Co-Founder & Director, Business Development, Boheco Life reiterates on value of the merchandise being one of the factors to drive the mode of payment. He adds, “The others are trust score, access to online payment methods, awareness, availability of cash at hand, surety about the purchase etc.”

A critical factor that leads to the customer deciding on the payment mode also rests with the category in questions. As Kapil Mahtani, Founder And Chief Executive Officer, Tresmode says, “Initially, the majority of our orders were made on COD payments, but you have to also take into consideration at the time we started the website in 2010, e-commerce was at its infancy stage in India. People love to have the ability to see, feel and touch things that they are going to buy. Also with buying footwear online, consumers are skeptical with the size and fi t. But over time the number is slowly decreasing.”

Majority of the e-commerce players inspite of considering COD option as a bane for their business are still reluctant to do away with it. 80 percent of them do not want to discontinue the COD mode of paymeny option.

According to Riya Kalra, Co-Founder – Candyskin, online platforms are majorly driven by discounts/ offers/ cashbacks and online wallets.

“Millennials and individuals under 40 who shop online are more attracted towards online payments due to the cashbacks they are being provided with. A lot of times, people who choose online payments are working individuals and do not have a lot of cash on them as they are on a fixed salary and get their salaries straight in their accounts. Also in the world of digitalisation, most individuals use plastic money like credit and debit cards rather than hard cash. Coming to individuals that opt for COD, these people are either very traditional in their spending habits or are unsure of their order or they do not trust the website they are buying from.”

Incentivising the Customer to Move Away from COD

The ‘more the merrier’ is one mantra that has made a considerable impact on online payment options in India. With online retailers expanding their payment options to include wallet payments, offering EMI options, card on delivery UPI payment mode etc. there has been a considerate decline in COD mode of payment.

Harsh Shah, CEO, FYND points out that the recent introduction of UPI based payment modes had helped increase the digital payment penetration to a large extent. “It simplified the operations for a common man and hence we have seen a huge shift to this payment mode. What this helps us in achieving is not just moving people using credit cards and net banking to UPI payment but also majorly moving COD customers to move towards this payment instrument. In past, within our company itself and also in the industry at large, we have seen that there is a direct co-relation between COD and order fulfillment ratio i.e. more the number of COD orders, lesser would be the chances of successful order fulfillment and nobody in the industry needs just orders but also fulfill them.”

Purkayastha says that in the space they operate in – that of refurbished electronics – the COD transactions have reduced from 90 percent to 70 percent over the past 18 months. FabAlley has been one of the fortunate few who have witnessed a decline in the number of people opting for COD mode of payment. FabAlley Co- Founders Tanvi Malik and Shivani Poddar say that there has been a decrease in the COD option since the time they began.

“In 2012, COD used to contribute to more than 70 percent of our payments. Now, it is at a 50-50 level when we talk about the domestic market. This is due to the acceptance PayTM primarily and a lot of other wallets coming in. UPI has also been playing a key role and a lot of other initiatives by the Government and banks post demonetisation have helped in getting more consumers fiscally included through cards and UPI,” explains Malik.

The Common Challenges

Aptly stating what COD means for the online retailers, Wangdi says that COD acts as a free lunch for customers and all the risks and costs are borne by the sellers.

“Unlike payments online where the amounts are deposited seamlessly to the bank with all the necessary information of the order, with more hubs opening, managing sash via COD options becomes slightly more challenging in terms of accounting and reconciliation,” he states.

Kalra adds to this saying, “The challenge could be that of a fraudulent order where the address is incorrect, or the customer straight up denies that they placed any order online. Refunding money to a COD customer is also always a challenge. Delivering to a COD customer would mean the customer would have to be present to receive the parcel. The delivery companies only attempt twice to deliver due to which we end up paying a very large delivery charge for the same customer.”

According to Purkayastha, the number of orders cancelled at delivery point go up exponentially if COD is the opted mode of payment. “In our industry, 40 percent of all COD orders are returned without payment, and 15 percent of them are tampered in some way or another.

Online sellers file insurance claims for these defective or fraudulent returns, which often takes weeks and months for approval/payment. This, in turn, affects the working capital situation of sellers, while also depleting their inventory. Even in cases where COD transactions are genuine and go through at the time of delivery, collecting and reconciling these transactions could take sellers upto 3 weeks, a large turnaround time for an industry built for speed.”

Chawla says another common issue faced by e-commerce company is that buyers order the same product on multiple sites. The one who reaches the customers’ doorstep fi rst gets his item delivered, all the others that follow are refused and returned. A simple solution could be the development of a ‘Buyer Risk Rating’. This would mean rating a buyer on the number of COD orders he has refused, which should be accessible to all online sellers. This would help them greatly to define up to what risk level customers they are willing to serve. A large e-commerce logistics company could possibly have this service in the future based on their delivery database.

Aside from this, actively working to enhance customers experience for using other payment options is a must. “This means creating a better UX while paying through UPI or cards, loyalty bonuses and discounts for prepaid, as well as keeping certain SKUs locked out for COD. This is an industry-wide issue, and not just limited to our portal – we are working closely with our partners like Amazon, Flipkart, Quikr, Udaan and others to de-risk our COD exposure,” Purkayastha concludes.”

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