Cash On Delivery – Pros, Cons and Why It Works in India

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Cash on Delivery

Cash On Delivery (COD) is currently one of the most popular mode of payments among Indian online stores. The major reason for its popularity is that the buyers do not have to pay anything before the goods are delivered to them. This helps in giving some confidence to new buyers as ecommerce is still a growing concept in India which is fairly nascent at this stage.

5 Reasons Why COD is Popular in India

1. Lack of Payment Alternatives

Most of India’s population either does not have a Debit or Credit card and the ones that do, do not such it much for online transactions. Cards are basically used to withdraw cash from ATMs but not for making payments online. Therefore COD is one means where a seller can reach out to buyers even if they don’t have means to make an online payment.

2. Product Condition and Satisfaction

There have been so many cases where you order something but you get something else. IN such cases, it just makes the process of online shopping very painful. If you have paid online, you’ll have to initiate refunds which again takes some time. Moreover, we Indians prefer to physically look, feel and touch something that we buy. In such cases, COD comes as a good option for buyers to actually check the product before paying for it.

In fact, this is what players like Myntra, Jabong, etc. are trying to sell through their new TVCs.

3. Competition

With so many ecommerce companies coming up, COD is a great way to have an upper hand over competition. Essentially it’s the difference between life and death for many of the small businesses.

4. Scam Scare!

The trust for online shopping and ecommerce has been increasing in India but many still fear using new ecommerce companies and fear that they’ll be scammed.

5. Indian Nature

Like mentioned, Indians love to have the ability to see, feel and touch things that they are going to buy. People have similar expectations when they buy online as well. If it wasn’t for COD, people would still walk in to a store so as to meet this criteria.

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So, we know COD is very beneficial for customers and fairly enough for sellers as well. But it does come at a price to the sellers too.

Pros for Sellers

1. Great Marketing Stunt– By now sellers also know that Indians have extreme preference for Cash On Delivery and are now using that as way of making themselves popular within the Indian market. Statistics reveal that online stores that provide COD have more customers than those that don’t. So, it definitely is a great way to market yourself especially if you are new to this space.

2. Gain Trust – Indians have more trust for those ecommerce companies that offer the option of Cash On Delivery. Sellers also get the option to impress their customers and gain trust in return. This, in fact, helps them build a good relationship with their customers.

Cons for Sellers

1. Fear of Return – COD also comes as a loss for sellers when customers suddenly change their mind and do not want to purchase the product anymore. In many cases, the seller would have already shipped the item and the customer would cancel when the order is at their door. In such cases, sellers face losses because of costs incurred during the logistic operations.

2. Fear of Theft – The agents handling delivery usually have a lot of cash to handle. A lot of security and legal formalities have to be done to insure yourself from theft, if you are a seller.

3. Time Taking – If you use third party services for COD, the realization of money takes a lot of time. There will be several processes that will have to be done which delays the money actually reflecting in your company accounts.

Conclusion

There are many who are working to find an alternative to COD so that it can be beneficial to both buyers and sellers. But at the moment, there is no other payment option that is readily accepted or preferred by the Indian people like Cash On Delivery.

In fact, some incentives to make online payments can be encouraged so that people use online payment methods. Eventually, their fear will reduce and more people will be encouraged to use online payment options.

  • Suhail

    To run a profitable eCommerce in India, you need to have the COD option always open, or you are sure to loose the customers. I am not sure, what alternatives can we come up with, which would be beneficial for buyers and sellers both, but i would like to suggest if someone can come up with option like Square payments https://squareup.com. That would surely be a boost for the business and something even the consumers will love.

    • Prabhjot Rooprai

      For eCommerce, your suggested option would actually be a costly proposition since they will have to pay fees to the credit card companies. COD would still be the preferred option as they can then offer better prices to the end customer. Square works in the western world, and that too primarily for small brick and mortar businesses, because the society has moved to plastic money to a large extent and usually don’t carry much cash.

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  • Santosh Singh

    thank you very much sir…

    • prateekpanda

      Pleasure 🙂

  • A V Rahul

    Nice article. Captures a lot of aspects on C-O-D.

    To extend the thoughts, some incentives to make online payments can be:

    1. Discounts on online payment (some websites have started this offering 5-7% flat discount on online payment)

    2. Guaranteed Faster delivery if payment mode is online

    3. Make them aware about mother nature and how online payment reduces paperwork (this may not work always :D)

    I specially liked the point that any new entrant in eCommerce needs to have C-O-D and with time, the trust can be utilized to convert C-O-D to online payment.

    One of the concept of Kano Model fits aptly here. According to it, a new feature in a product or service may start as a ‘delight’ for customers but with time, customers may get used to it and then it becomes ‘must have’ for them. After this, whenever a similar product/ service is launched, the ‘must have’ features definitely need to be present. The same is case with C-O-D in eCommerce.

    Thus, C-O-D is here to stay !

  • srila ramanujam

    if could use for a couple months and then pay, that too would be welcome here, somehow buying is still in the sceptical mode, much to the agony of the sellers eternally waiting for payment to be collected.
    But on the same token must mention that, the last 2 online buys had me totally bought out on the customer service !! One Company actually sent an sms couple hrs before the actual delivery took place, a great service I thought.
    And another Company, sent a few bonus interesting quips on their “Thank You” message, post-delivery, again an intangible but a very qualitative value-add to the buying experience…..they’d capture their target market just based on customer service I thought!

  • Manish

    Would like to know which companies would be good for COD service for startups.

  • Darshit Mulani

    It’s true yesterday I ordered on E-bay it was cheap so I ordered via NetBanking and today simillar product on FLipkart got huge price decrease around 1600 on sale! wow so I ordered product from Flipkart immediately but I now fear that E-bay will return my money or not. :/

  • Sunny

    Very informative Prateek, I have been a reader of your blog for some time now all your content is very well researched and provide great insight to the readers. Carry on the good work, I saw squareup listed here and found another http://bit.ly/1z1Oybb maybe a comparison of services next time 🙂

  • Shrikanth Iyer

    What if at the time of CoD, the payment is made using a
    mobile phone (thru IMPS option) or some other means like paying thru a Credit
    Card ?? atleast some of the evils of Cash Carrying at the sellers place can be
    reduced…..for e.g. cash loss/theft, cost of insurance, cash counting and
    reconciliation process….this will only make CoD safer for the seller…..