Quantified Commerce’s Agam Berry on India’s love of cash on delivery

E-commerce companies are facing a problem when it comes to entering the Indian market. COD, or cash-on-delivery, is the preferred system of payment for Indian consumers who shop online. 83% of Indian consumers said they prefer cash-on-delivery to credit or debit card purchases. The reason why so many Indians prefer a cash-on-delivery system is due to the fact that infrastructure and delivery within the country are not exactly the most reliable and credit card systems aren’t as trustworthy as those in other countries, and in fact many Indians do not even make use of credit or debit cards at all, as credit card penetration in the country, while rising, is still low.

This COD problem is one that is absolutely worth solving. The digital economy in India, including e-commerce, is expected to grow into a $1 trillion market by 2022, according to a recent joint report by the Confederation of Indian Industry and Deloitte. E-commerce companies that are looking to get a slice of this pie are experiencing some growing pains. One of the biggest pains is the COD problem. Amazon reported losses of $936 million dollars in September, and you could attribute some of those losses to the fact that Indians prefer cash-on-delivery.

But why is COD such a problem for e-commerce companies like Amazon? Part of the reason is restricted cash flow. It could take months for payments to reach the seller, and as Sachin Bansal, co-founder of Flipkart said, “I would not like to have cash transactions. The non-immediacy of payments and higher returns are the problems we face with cash-on-delivery.”

Not only could cash take longer to reach sellers, there remains a possibility that it might not get to them at all. While cash-on-delivery transactions cost e-commerce companies an additional 3% to process it could be more when returns are factored in. As Ashish Jhalani of eTailing India claims, “the bottom line is impacted due to such orders. This number goes up by about 30% when returns happen.” The increased losses are not only due to returns but also because companies incur courier and shipping costs regardless of whether or not the customer purchases the product. So while impulse purchases may increase due to the fact that payment is not due at the time of ordering, returns are commonplace, and there’s no assurance that a company will receive payment.

So as India enters the digital age and online retail shopping rises, how do companies get around the COD problem? Quantified Commerce, a company focused on building e-commerce brands mainly in India has found creative and practical answers to the problem of cash-on-delivery. We spoke to Agam Berry, co-founder of Quantified Commerce to find out what his company is doing right now to avoid the COD problem. “The best way to lower returns and shipping cost in cod orders is by having local inventory in every city,” said Berry, “we have warehouses in four cities and have plans to add forty cities by the end of the year.” This solution not only solves the cost problem but the return problem as well, “most of the time returns happen because a customer changes their mind in the time it takes for a product to get to them, but when you have inventory in every city lowering shipping times that problem is greatly reduced,” Berry said

Berry also talked about how vertical integration is part of the solution to COD, “we’re looking into purchasing our own trucks, which would allow us to move our product between warehouses faster. Trucking and logistics in India are very fragmented and it takes as much as seven days to move a product from one part of the country to another, which puts further pressure on the liquidity of the companies in this space.” The decreased delivery time would be able to loosen the restricted cash flow as an added benefit, the faster a customer gets the product into their hands the faster a company can get the cash thus helping the cash flow cycle.

While India is making strides towards the use of credit and debit cards, the COD problem is still one that is relevant to companies entering the Indian market. It’s a tough problem to solve, but with companies like Quantified Commerce leading the charge, the solution may come sooner than we think.