Over a decade ago, Indiaplaza.com launched the revolutionary ‘cash on delivery’ (COD) option in India, which spearheaded the growth of the Indian e-commerce market.
This option was introduced to help encourage sales in the relatively new Indian e-commerce market. COD was put in place to help make customers comfortable with online shopping and gradually move towards using online transaction methods like, net banking, use of channels like PayPal and the use of credit and debit cards to make payments.
However even today, eight in ten transactions in India are made using the COD method, whereas in the West 80 percent of the transactions are made via online payments. This is probably why the Indian e-commerce market is facing big problems with growth and development as compared to their western counterparts.
With a 45 percent rejection rate, high expenses involved in delivery and collecting money, and longer turnaround time, the COD option is not sustainable.
The executive director of KPMG, Akhilesh Tuteja, said: “Cash on delivery defies the ecommerce model; it locks up working capital and increases your exposure to risk. No merchant likes it.”
According to an Economic Times report, online lifestyle retailers like Fashion and You and Myntra.com have said that around 60 percent sales are made using the COD option. If this trend continues most of these companies will go into losses, unable to even cover costs.
E-commerce companies incur a cost of INR35 to INR65 on every COD transaction. If the product is rejected or if multiple trips have to be made for delivery, the cost can go up to INR100 per product.
This shows that the high cost incurred by companies in sustaining the COD transactions can leave the ones without funding from generous VC’s in dire straits.
The Indian e-commerce industry is in need of a facelift in terms of growth, development and innovation. With money being locked up in the unsustainable COD transactions, these companies face an urgent need to find a feasible solution to this problem, in order to prosper and grow.