Cash-On-Delivery Payment Option: A Boon or a Bane for E-commerce Entrepreneurs?
Ecommerce is going on becoming a trendsetting phenomenon with each passing day. That’s one fact. The other fact is, that while window-shopping is a term being rendered extinct by browsing, and trial room by home; cash is still not being replaced by card – or it’s taking rather too long.
Cash on Delivery is not just an intelligent start-up tool, but it’s also a great marketing tactic for the already established players. The instant trust developed as your customers are assured of a payment receipt upon delivery, is priceless. But it soon turns out to be too pricey, in case the customers cancel their orders after they’ve already been dispatched, or outright refuse to accept the deliveries – which happens quite often.
Here are a few points that might help you understand the benefits of, and troubles with, the Cash on Delivery model in Ecommerce:
Why not Cash on Delivery?
Let’s start with the possible cons with this model.
The Likelihood of Returns
While our average shopper is all too happy about not having to visit a physical store to buy his favourite product, he would certainly like to have the advantage of being able to hand the product back over to the shopkeeper, for the simplest of reasons, like not feeling like buying after all.
A buyer returning a product would cause you to pay for shipping, both ways, plus taxes. Logistics being one of the topmost priorities for a merchant, is just another word – often an unknown one – for a buyer. In case of products which cost only a little more than the amount spent in shipping them, Cash on Delivery would put extra pressure on your pockets. This is the most important reason for CoD being a risky alternative for e-commerce merchants.
Fear of Theft
Apart from a constant fear generated by inconsistency on the part of a customer with respect to even wanting a product, there is also an apprehension regarding actual thievery. There have been countless cases, when the delivery agents have reported of having been robbed. Since most people prefer the CoD option, making the delivery agents carry a lot of cash with them, the business can incur huge losses. That’s one of the reasons why two of India’s largest e-commerce providers don’t deliver high value products to a few parts in Uttar Pradesh. This necessitates the placement of right security measures in place.
Increase in Settlement Period
While in case of an online receipt, the money is directly deposited to your bank account, the same isn’t true for Cash on Delivery. Involvement of third party companies for the purpose of cash handling, by design, adds another layer to the supply chain. This inadvertently increases the time required for the realization of money, the average settlement period being around 30-45 days.
Why Cash on Delivery?
As much as CoD may be a somewhat difficult option for merchants, the rewards with it are no less fulfilling.
Builds Customer’s Trust
Cash on Delivery makes up for such a smart store promotion strategy, not just because this way you would be providing an easy way to pay, but the safest way to pay too, until your customers have a chance to really explore your website and slowly shift to other options. Also, with duplicity and shams being the order of the day on the Internet, you don’t have to wait a single day to turn any product delivery of yours into a successful tale of Customer Satisfaction. Once the customer accepts the delivery, it means they’re happy. Or they wouldn’t have paid for it in the first place!
Online Security Concerns
Introduction of Cash on Delivery as a means to save a consumer from any lapse on the Fraud Management front from the merchant’s side, or from a fraudulent merchant himself – was in fact, just the need of the hour. In addition to providing a safety net for the consumers, this option unfolded a brand new prospect of a wider customer base for the Ecommerce venturers, and it still does.
Low Credit Card Penetration in India
One of the reasons for the CoD model to be such a hit is the really low credit card penetration in the country. The apprehension to use a credit or a debit card is so prevalent that this has well become one of the biggest failures of our banking system. It’s truly appalling, that with a population of more than a billion, the country can account for only a few million credit cards.
Black Money Culture
It’s not just the online retailers and banks, but the Government too is well aware of the need to shift to a cashless economy – the cause being the bulk of black money that is still within the country. You will find many customers, especially from the Tier-II cities who would prefer to pay for high value transactions in cash.
With so many things going against Cash on Delivery Model, and obviously so many going for it, the question here is how do you know whether you should really opt for it or not.
As an online business owner, you would need to make an informed decision while making that choice. The important thing to understand here is that while CoD might not seem a very viable option as its cons seem to weigh more than its pros – it is as of now, the most popular payment option.
In a country like India, where so many people are still anxious to even make an online purchase, we may probably just need to buy them a little time to get more comfortable with making an online payment. Till then, we can only hope for a more robust Judicial System which can help us put a stop to all the problems arising due to the current model of CoD.