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Why Does Cash Still Rule Ecommerce In India?

Contrary to popular belief, ecommerce began in India in the mid-1990s, which was way before Flipkart came into existence in circa 2007. I remember placing orders from a dial-up modem on Fabmall, Rediff and a couple of other Indian ecommerce pioneers in the late 1990s. I used to pay online by credit card, which I remember was the only mode of payment supported by these websites.

That said, Flipkart did pioneer COD in 2010, which gave a huge fillip to ecommerce in India. For the uninitiated, "Cash on Delivery" is a mode of payment whereby a customer buys online from the ecommerce website but pays offline to the person who delivers the goods at their doorstep. The actual payment is made typically by cash but also increasingly with credit card, debit card or mobile wallet nowadays. So COD could equally well stand for "Card on Delivery" or "Wallet on Delivery". Given the variety of payment instruments actually used in a COD transaction, "offline payment" is perhaps a more accurate term for this method of payment. But that's a post for another day.

In this post's context, there's another characteristic of COD that plays a more important role: In this mode of payment, the customer does not pay at the time of order placement but only against receipt of goods.

Initially, Flipkart and other ecommerce companies ascribed the runaway success of COD to low card penetration in India. Even the mainstream media went along with their claim that there were very few cards in India. This claim was highly patronizing at the time - I used to pay for my online purchases in the late 1990s by credit card. Today, it's total BS: There are more than 600 million cards and only 40 million online shoppers in India, so an average Indian shopper has a choice of 15 different cards with which to pay for an ecommerce order.

If card penetration is not the reason for the overwhelming popularity of COD, what is?

Going by personal experience and anecdotal evidence, it could be friction and failed payments caused by two factor authentication. For the uninitiated, 2FA became mandatory for all online payments in India in 2009. For reasons explained in the exhibit at the end of this post, 2FA mucked up online payments and drove many long time credit card users like me to COD for online purchases.

Cue to the present.

The Government of India demonetized high value currency notes in November 2016. On the back of the "Note Ban", the government began pushing cashless payments. Trending as #CashlessIndia, the drive has resulted in the proliferation of several new digital payments such as UPI, BHIM, BharatQR and, most recently, Aadhaar Pay.

Credit card, debit card, e-wallet, m-wallet, realtime A2A, biometric - you name it, India has it. There are probably more types and brands of digital payments in India than any other country in the world. Some of them (credit and debit cards, mobile wallets) involve incumbent banks and card networks (Visa, MasterCard and the indigenous RuPay) whereas others (UPI, BHIM and Aadhaar Pay) disintermediate card networks from the payment value chain. But I digress.

More important point is some of the recent digital payments have found innovative ways to enhance the CX of online payments and improve their success rates while still remaining compliant with the regulator’s two-factor authentication mandate. Think HDFC Bank's PayZapp and PayTM.

The proliferation of frictionless digital payments has had an immediate and perceptible impact on brick-and-mortar retail. In a recent newspaper article, one of the doyens of the Indian organized retail industry attributed strong growth of his company's topline to digital payments (Source). When I read this, I'd tweeted:

As a payments professional, I'm delighted to see a direct link between digital payment adoption & a company's topline.

But ecommerce still remains stubbornly driven by cash. According to latest reports, nearly 70% of online purchases are paid by COD (Source), with some reports putting the figure as high as 83%.

If that sounds puzzling, it is - but only if you think of payments in the isolated context of its operating model.

If, on the other hand, you look at the entire customer journey, payment plays another role: It acts as a seal of trust placed by the buyer on the seller. In simple terms, you pay someone only if you trust them to deliver. It's this facet of payment, which is unrelated to the mechanics of its operating model, that determines the winners and losers among payment methods.

From personal experience and anecdotal evidence in the recent past, cash still rules ecommerce in India because of the following reasons related to trust:

#1. Delivery Address Ambiguity

While ordering a pizza on Pizza Hut's mobile app, I reached the checkout page. I was asked to enter my building's name. As soon as I finished typing in the first three characters of my building' name (SAT), the app went into a tizzy. It recovered after 2-3 minutes and displayed a long list of buildings from which I had to select one. None of them matched mine. Ditto when I entered the first 3 characters of my street name on the next field of the checkout screen. Since I had to do something to move forward, I selected the option that came closest to my location. (No, the app didn't allow freeform text entry of my building or street name). The app again went into a tizzy. When it came back, it displayed the delivery address the way it had reckoned it. This didn't match my real address.

With so much ambiguity in the delivery address, I wasn't sure if my order would ever reach me. No sensible customer under those circumstances would pay online by card in advance. Neither did I. I opted for Cash on Delivery.

#2. Delayed Deliveries 

Ashish Vyas articulates this problem very well on LinkedIn:


Order a Laptop on 7th April from Flipkart. Expect it to be delivered by 11th April. Delivery partner E-Kart’s phone is not reachable for the entire day on 11th April. The delivery person calls me in the evening to tell me that the delivery couldn't be done on that day due to manpower shortage and would be done on 12th April 2017, 2.00 p.m. I explain to him that my work is suffering because of the delay in delivery. But he is not bothered and gives me more reasons why he couldn't deliver on that day. 12th April - Entire day passes, again E-Kart’s telephone is switched off for the whole day. No way I can speak to any executive of Flipkart to understand by when the delivery will be made. Flipkart’s Customer Care only gives an automated response. Now that the money is already with them, they don’t give a damn.


No prizes for guessing what payment mode this guy would select the next time he orders something online.

#3. Fake / Wrong Deliveries

As I'd highlighted in Beware of Credit Card Reward Redemption Theft, fake / wrong delivery of documents, bills and magazines is a widespread problem. Looks like the epidemic is spreading to ecommerce packages now.

It's easy for a courier company's delivery boy - yes, they're always boys - to log into his app that he has delivered a consignment successfully without even ringing the consumer's doorbell. Ergo fake / wrong delivery is easily possible. If you pay upfront, you'd have to chase the courier. With COD, the courier will chase you. In this situation, any sensible customer would like to be chased rather than to have to do the chasing.


As the above incidents illustrate, many people who otherwise have been using credit cards extensively in their day-to-day lives turn to Cash on Delivery when it comes to ecommerce (and then pay by card or m-wallets when they receive the goods!). In each example, the key issue is when the payment is made rather than how it is made. Contrary to what online retail honchos have been saying, lack of cards or fear of fraud risk didn't have any role to play in the choice of COD in these three cases.

This goes back to the raison d'être of COD.

In a recent article in Times of India, Flipkart's first employee Ambur Iyyappa, spills the beans about the real driver for COD:


By 2010, Flipkart was doing brisk business. But the challenge to scale up was that customers didn't want to pay for something before getting it. And our delivery partners at that time lacked the infrastructure for cash on delivery. It would've been easy for Flipkart to wait for others to build the capability first. Instead, Ekart, Flipkart's supply chain, launched cash on delivery.


Ecommerce companies introduced COD to overcome the consumer's distrust about delivery, which, in the case of physical goods, will always lag order placement by a definite period.

I strongly suspect that it's the same trust deficit that still drives the popularity of COD for ecommerce in India.

I'm guessing that, over time, banks and fintechs will overcome 2FA-related hurdles to greater use of online payments. But I still suspect that delivery risk will keep COD as the most popular method of payment for Indian online shoppers for a long time to come.

In Will The Sad State Of Logistics Hurt eCommerce? (hyperlink removed to comply with Finextra Community Rules but this post will appear on top of Google Search results when searched by its title), I’d highlighted the growth challenges posed by core logistics (also called "3PL") to ecommerce in India. It now appears as if the finance side of logistics ("4PL") is posing existential threats to the industry. Just when the Flipkarts and Snapdeals of India are trying to turn profits, logistics is pushing their customers to COD (or keeping them there), which is reportedly the costliest method of payment for an online merchant.


Comments: (4)

Charmaine Oak
Charmaine Oak - Shift Thought Ltd - Bristol 25 April, 2017, 16:50Be the first to give this comment the thumbs up 0 likes

Great insight Ketharaman. I'd been wondering how Amazon India is coping with some of the delivery issues you mention, as the logistics infrastructure is quite different in their early markets. They will need patient investors as they build up in India, as their policy of covering the customer could be expensive until they reach the scale at which costs can be absorbed.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 April, 2017, 19:061 like 1 like

TY @CharmaineOak. Of late, Amazon India is not coping very well with delivery and other issues. Some of its attempts to cope seem to be global whereas others are specific to India. But all of them deviate from Amazon's past commitment of "covering the customer". So much so that, after 15+ years of showing cult-like loyalty to Amazon, I've started looking for alternatives. You can find more on this subject on the following two posts on my company blog: 

Strange Happenings In Amazon

Should I Look For An Alternative To Amazon India?

(hyperlink removed to comply with Finextra Community Rules but these posts should appear on top of Google Search results when searched by their respective titles).

João Bohner
João Bohner - Independent Consultant - Carapicuiba 26 April, 2017, 14:23Be the first to give this comment the thumbs up 0 likes


@Ketharaman Swaminathan,

The issue #1. Delivery Address Ambiguity, tends to never be solved.

Hopefully, there is a paradigm shift available for the points of delivery of the 'milk run'.

Instead of adresses, the Lat Long coordinates, with five decimals should be used.
The fifth decimal place is worth up to 1.1 m, in the Equator Line, which is about a size of one door.

Then, Lat, Long and Altitude should be included on the adresses records.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 April, 2017, 17:091 like 1 like


TY for your comment. 

In a B2B context, people have started using Google Pin / Lat Long Coordinates to indicate office locations. For my office it's / 18.562772, 73.918031.

However, the context of ecommerce is B2C, where it's typically not up to the consumer to decide how to specify the address. As in my example, in most cases, the brand decides how the consumer must enter the address. If I come across a brand that allows the consumer enter freeform text, I'll use that field to enter Google Pin / Lat Long Coords. But it's a separate matter whether the brand is geared up to guide the delivery boy to a physical location on the basis of that info.

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