eTailers in trouble as COD gaining pace in Indian markets

Indian eCommerce industry, which has been growing rapidly so far could soon be hitting a speed bump. The ecommerce industry’s once ‘secret weapon’, the Cash-on-Delivery system, is now soon turning into their worst nightmare. The industry is in trouble as consumers are backing out after promising cash-on-delivery (COD) and returning products purchased, leaving the etailer and its supply partner with mounting losses.

As far as the COD model goes, the consumer always has the option of returning the product if not satisfied, which means the etailer doesn’t receive money for the said product, and also has to bear the shipping costs of the product ‘to and fro’ that adds salt to injury! Also, flexible return policies provided by various eCommerce sites open ways for consumers to avail as much as they can and return the product for any odd reason.

According to the financial advisory firm Motilal Oswal, the number of mobile wallet users is estimated to jump five-fold from the current 3 crore to 15 crore by 2019, however, COD still accounts for 60% of all ecommerce orders.

Gurudatt Nadiger who started selling household essentials this February has now realized that he has lost more than he had gained. Nadiger says, “Consumers today are not willing to wait longer than two days and might buy the product elsewhere and reject the delivery."

As per a business management platform for eCommerce sellers, Sellerworx, 70% of all returns are made up of customers who do not accept deliveries, of which a majority are cash-on-delivery arrangements. In this case, merchants are still charged with the commission.

As eCommerce biggies are aiming to enlist more and more merchants on their online market, the digital payment method is also gaining pace at firms like Snapdeal.

A Snapdeal spokesperson has said, "As more customers opt for prepaid payment options, we have seen significant efficiencies being built into our digital commerce ecosystem."

Flipkart, India’s leading eCommerce firm which popularized the cash-on-delivery model now remains agnostic about which payment method customers choose. Flipkart, reportedly, is expecting to get some 1,00,000 sellers on its platform sell merchandise worth $10-12 billion by the end of this year.

Mobile wallet Paytm, which launched its ecommerce platform in February, has seen its cash-on-delivery orders drop from 10% in the beginning to 5% now, said founder and CEO Vijay Shekhar Sharma. "We have the least returns because consumers pay in advance, and merchants prefer that," he said, adding that this may be a trend.

Analysts believe that apart from the loss due to returned goods, in COD, the credit cycle also gets hampered. "In a cash transaction, merchants receive money only after a product is delivered, for the extra few days, the vendor needs more working capital. There is a cost to it," said Gaurav Gupta, senior director at Deloitte India.

In the global eCommerce market, particularly in China, Russia and a number of Southeast Asian Countries, COD is gaining popularity. However, in China — one of the largest markets for ecommerce — the proportion of cash payments has dropped from 70% in 2009 to 30% last year, giving way to mobile payments, according to business intelligence firm Asia Briefing.

Experts believe a similar trend will follow in India as well. "India is still a cash economy to a large extent, so it will not phase out immediately," said Vishal Gaur, associate dean of Cornell's Johnson School of Management.

"But single workers or working couples are generally comfortable using credit cards or mobile payment options. So it's really a question of the target market."

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