"Necessary evil." This is how many merchants in developing countries describe Cash-On-Delivery (COD) for online commerce. Although there are numerous negative associated with having to deal with cash payments, COD is used because it has expanded the online
commerce market by drawing in consumers who do not have debit or credit cards and/or other electronic means for making payments. This post examines the COD situation and alternative methods to deal with it, including a new approach of using digital cash.
Scope of Cash-On-Delivery usage
It may be surprising to some, but COD is the predominant payment type for online commerce in many parts of the world. According to Ernst & Young research, COD accounts for 60-80% of all online commerce in India. This Indian Business Today article describes
the “Cash-On-Delivery Impact on eCommerce, Companies and Consumers.”
Within the Southeast Asia region, it is estimated that 70% of online commerce is COD. In
Vietnam, COD is as high as 90% for all eCommerce payments.
COD is the biggest challenge for eCommerce within the Middle East and North Africa (MENA)
region. About 60% of all online purchases conducted there are COD and, increasingly, customers are refusing to hand over cash if they are unsatisfied with an item resulting in pointless delivery costs for the merchant. Other problems include a big
lag time between order and payment and the need for delivery people to carry cash, which is another risk.
Beyond these COD and cash management problems, merchants must also deal with significant online checkout process problems—where consumers typically only have the option of paying by entering debit/credit card information within the online shopping cart.
Recent estimates for cart abandonment are as high as 74%, which this year will lead to $4 trillion (with a “t”) in abandoned merchandise!
Ways of dealing with COD-related problems
A cottage industry has grown up to help merchants and consumers deal with online payment problems. PayPal which has facilitated online purchases for millions within the developed world—by enabling consumers to enter (primarily) payment card information
once (with them) and then pay easier/faster online—has only managed to achieve very modest market share within the MENA region.
Granted, it is still early days for eCommerce in these fast-growing regions, but the historical pull for cash payments—both online and offline—indeed dies hard.
Some have tried to adapt to this strong orientation toward COD. Flipkart,
the largest eCommerce player in India and now valued around $12 billion, originally built their entire business around the COD payment model… before investing more recently to facilitate greater electronic payments.
Ukash is a company who has developed a mechanism to enable consumers to pay
with cash in stores near them in order to conduct online transactions.
Walmart’s Pay-With-Cash program lets their customers order merchandise online from Walmart.com, and then pay for the items ordered with cash in their
stores.
Digital cash as the new way forward?
A new model for online commerce using digital cash is beginning to emerge. Rather than the inconvenience of needing to pay in-person with COD and/or having to enter payment card information in online shopping carts, consumers will be able to conduct online
purchase transactions by only needing to enter their mobile phone number and secure PIN. Forward-looking merchants who accept this new digital cash payment type will also get paid more rapidly.
This emerging model will certainly take time to gain significant adoption with eCommerce merchants; however, online purchases using digital cash as a payment type will avoid the problems of COD while offering merchants the opportunity for lower cart abandonment.
Let us know what you think.