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Making 'Cash on Delivery' attractive to E-Retailers

It is still early days in India for the 'Online Retailing' industry. Right now the industry is fragmented as there are many players in this space. Hence there is a stiff competition among the players. One of the ways by which  E-Retailers are attracting people to buy on the net is by offering 'Cash on Delivery' (CoD) payment option. This is helping them overcome the reluctance of customers to shop on internet. This payment option tries to overcome the trust barrier which prevents customers to shop on internet.

CoD is a good option for customers who want to experience online shopping for the first time. It allows customers to pay only after receiving the goods. While CoD is an excellent option for the customer; it is the least attractive payment mode for E-Retailer. This is because CoD eats into their precious working capital. Moreover, CoD has other pain points when compared to online payment using credit/debit card.
 
The two main pain points in CoD are
1.      Courier Agent who delivers the goods collects the money from the customer. Once they accumulate cash from multiple deliveries they have to come back and deposit the cash to the E-Retailer's a/c. There is a time gap before the payment is realized by the E-Retailer.
2.   Collecting large amounts of cash also increases chances of theft.
 
Technology offers some solace in addressing the above pain points of CoD. E-Retailer can explore any one of the below mentioned options.
 
1.    Mobile payment options like Airtel Money (This is based on Infosys mobile commerce platform
WalletEdge) can be used to get the cash from the customer. As soon as the customer receives the goods, they can transfer the money using Airtel money on their phone to the vendor's a/c. This will ensure faster and safer mode of cash transaction. This solution has a limitation as all mobile customers may not be using Airtel services. The second solution detailed below can overcome this.
 
2.   Convert mobile phone to Point of Sale (PoS) terminal. Companies like Square Inc (USA), Ezetap (India) offer a simple credit/ debit card reader which can connect to a mobile phone/ device and enables the phone to read debit/credit card. Once a customer receives the goods which they have ordered online, they can swipe their card in the device carried by the courier person. The payment is made instantly. As the mobile phone and debit/credit card reach in India have grown tremendously in last few years, this option is one of the convenient options available for the E-Retailers.
 
Both the above solutions give the E-Retailers a faster and secure way to receive the money from the customer. As our Indian E-Retailers try out new and innovative ways to make customers shop on the net perhaps very soon we will have our own Amazon!!

Comments

Good one. This will make more customers attractive on online shopping.

Great blog Ramesh .. I had one comment on the mention of time gap before the payment is realized by the E-Retailer in COD model. I would like to know what the revenue recognition for etailers in India is. In some countries (US being one of them) the revenue can be recognized by the etailer as soon as the product is shipped to the customer.

Thanks Samer.To answer your question, based on my reading on this topic for Cash on delivery sales the revenue is recognized when delivery is made and cash is received.

Nice Blog. there are few disadvantage i can see on Cash on payment.The advantages are mainly to the Retailer who receives the payment.The disadvantages are mainly to the payor because he will not have proof of payment if he is not using the airtel money.Also how will you handle the scenarios where the Bill to and ship to party are different.

I have collected some basic fact about Mobile phone penetration. it is still very low. sharing with you. "India has 70 subscriptions per 100 people, of which 96% are prepaid , while 53% of households own a mobile phone. Mobile phone networks currently cover 83% of Indians, a number that lags far behind other countries. Indian mobile users speak for 330 minutes per month on average, or 11 minutes per day, down from 425 minutes per user per month.

India's price per minute use is the lowest possible at $0.01. Just under half of Indians use text messages on a regular basis. India however lags far behind in mobile internet access: just 3.3% use mobile internet" . Do you think Airtel money will be a good payment method for COD.

Hi Mukesh if you notice I have suggested the most viable option as Option 2 i.e customer pays the retailer by swiping the card in the mobile device carried by the courier.
Airtel Money was suggested as one of the options as this form of payment is getting popular and we are offering more choice of payment methods.

Hi Mukesh Cash on Delivery is favorable to customer. For Retailer it is least attractive option the reasons are given in the blog.
Regarding the proof of payment to customer when they use debit card on mobile device or airtel money is given by sms. This is valid proof.
Also to answer another question cash on delivery is not given as option if the Bill to and Ship to party are different. This option is valid only if Bill to and ship to are same.

Nice blog!

Considering that the courier agent has to gather the money and then transfer it to the E-Retailer, along with these theft opportunities etc - Does this make payment on delivery (I wont say cash on delivery because if people can pay by card upon delivery then it's not really 'cash' on delivery) the least favoured method of payment for both the courier agent and the e-retailer? If so, then it is quite an admirable system as it really shows that companies are embracing 'customer knows best' by having inefficiencies in their financial flow to meet customer wants.

However, one must also wonder if e-retailers chose to do this or were essentially forced into it by customers who know that if the e-retailers are not meeting their demands, they could go shopping themselves.

I look forward to hearing your thoughts on the matter.

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