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The 'Cash on Delivery' Payment Option!

Cash on Delivery (COD) as a payment option has existed for a long time, but is fast becoming a popular payment option in some countries such as India. A customer places an order online and chooses the COD option. The order is fulfilled and the customer makes the payment in cash at the time of delivery.

In developed markets such as the US, COD as a form of payment option is still used during pizza delivery; the order is placed through the telephone (or a website) and fulfilled by the nearest restaurant. The customer makes a cash payment to the pizza delivery boy (if pizza is being delivered home) or at the restaurant (if the customer has chosen to pick up the pizza at the restaurant.). Since the use of credits cards is pervasive, it is the preferred mode of payment even for orders placed on retailers' websites.

Compare this with India where as per the Reserve Bank of India, the number of credit card users is less than 1% of the total population. In a scenario such as this, offering COD as a method of payment gives both customers and retailers alike tremendous benefits.
The customer benefits by:
• Being able to place orders online even without possessing a credit/debit card
• Being able to pay when the item has arrived (which I suppose is the 'killer' feature as typically Indians are suspicious about paying for something that they cannot physically see/touch/feel!!)
• Reduced chances of online fraud.
The retailer benefits by:
• Reaching a wider base of customers such as students, housewives etc. who typically do not have a credit/debit card
• Offering the service as a differentiator with respect to competition
• Simplified business processes; if the customer chooses not to accept delivery, there is no refund as there has been no payment. However, if the customer accepts delivery and then changes her mind, it is typically covered under the returns process depending on the product ordered.

There are a few complexities involved too, though. The option can only be offered if retailers have their own delivery fleet or have tied up with carriers to collect payment on their behalf. This adds to the retailer's cost which needs to be accounted for in the overall product pricing.

The COD option has already helped increase sales for Indian online retailers; it will not be a surprise if this becomes a must-have for the future. Let me know if you have any thoughts on this article.

Comments

Nice Blog. there are few disadvantage i can see on Cash on payment - for example -The advantages are mainly to the Retailer who receives the payment. This is due to the lack of needing to have a bank account to cash the payment. It is also a means to not claim the income on their taxes as if not placed in a bank account it's receipt is basically hidden from the taxing agencies. The disadvantages are mainly to the payor because he will not have proof of payment. Why can't retailer use DOD (Draft on Delivery)?

The benfits to the customer is good as you had rightly pointed. However the difficulties are not just the overhrad or cost of having a delivery fleet or tie up with courier service. There are many more and I am not sure it will be a successful model and a must-have in future e-commerce business model. There is an article in http://economictimes.indiatimes.com/tech/ites/cash-on-delivery-eroding-margins-of-e-commerce-firms/articleshow/12240207.cms?curpg=1 which has certain facts about how Cash on Delivery is eating up the margins. It is an insightful article.

Hi Saurav, While the difficulties w.r.t cash on delivery persist, I am not sure if online retailers in India have a choice in the immediate future. The use of credit card is still low in our country and a large portion of people who order online today may not even have credit cards. (students, say) So unless the scale of usage of alternate payment methods increases, use of cash on delivery will continue. As the article mentions, retailers will have to fine tune this process to avoid fraud and other issues with the delivery process.

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