Cash On Delivery, The UPI Solution 'Logistics companies must invest in card machine terminals and train their delivery boys on how to use them'
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Indians love to deal in cash. Keeping this in mind, Flipkart launched their Cash On Delivery (COD) service in 2010. This was a risk, but it paid off for them. Their growth skyrocketed since. COD brought them customers from rural areas and it contributed to 30% of their topline in just two months since its launch.
Even as of mid-2016, COD comprises 80% of their orders. When COD was launched, it was offered free, but today, most of the companies pass on their cost to the customers.
Looking at the success of the Cash-On-Delivery service, few e-commerce companies began offering Card-On-Delivery service. However, it is not very popular and comprises less than 1% of the orders. Hence, most ecommerce companies don't even mention it.
Let us understand how the Payments-On-Delivery model works. Cash-On-Delivery and Card-On-Delivery are handled by the logistic companies, mainly BlueDart and Aramex. They are the ones who handle the cash given by the customer and their delivery boys will need to carry the card machines with them to collect the payment from the customer.
Card On Delivery could not be popular because:
The logistics company must invest in card machine terminals and train their delivery boys on how to use them. This cost is shifted to the e-commerce company.
Companies such as BlueDart and Aramex charge an additional transaction fee plus a percentage of the amount collected (1-2%). If a small merchant does 100 transactions a day and assuming the transaction fee is Rs.50, he spends around Rs. 5,000 on COD.
Additionally, the merchant must spend on collecting the item from the customers. Post demonetization, the Card-On-Delivery service has picked up, but is still not as popular as Cash-On-Delivery.
The adoption of mobile wallets and payments also picked up. We can see a lot happening in the fintech sector with the NPCI coming up with UPI, Aadhaar Pay and Bharat QR. We should gradually see e-commerce companies offering UPI On Delivery (UPI-O-D) payment options soon, as we can clearly see that the cost of carrying card machines are too high and will eat into the margins of e-commerce companies.
The reason why UPI-O-payments are a great idea, especially after demonetization, is because there are around 300 million smartphone users in India and this number is expected to grow to 467 million by 2021.With a population of over 1.3 Billion, we have around 660 million card holders in India.
To put it in perspective, since most mobile wallets were launched less than 5 years back, we stand at over 200 million mobile wallet users with 300 million smartphone users in India. Hence, it is safe to say that mobile payments are here to stay and the COD system will soon transform into an MOD (mobile on delivery) system.