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Contrary to popular belief, Flipkart didn’t pioneer ecommerce in India. That distinction belongs to Fabmall, the startup that introduced ecommerce in the mid-1990s well before Flipkart was founded in 2007. I remember placing orders from a dial-up modem in 1998 and paying online by credit card, which was the only mode of payment supported by ecommerce forerunners like Fabmall, Rediff and IndiaTimes Shopping.

That said, Flipkart did pioneer COD in India. The new payment method, launched in 2010, gave a huge fillip to ecommerce in India. For the uninitiated, under COD, a customer orders online but does not pay online – instead they pay the person who physically delivers the goods. In the early days of COD, the payment at the customer’s doorstep happened by cash, ergo the term Cash on Delivery. However, with the proliferation of mobile POS and mobile wallets, many COD orders are paid for with credit card, debit card or mobile wallet nowadays. So COD could equally well stand for “Card on Delivery” or “Wallet on Delivery”. Given the variety of payment instruments actually used in a COD transaction, Cash on Delivery is a misnomer. Perhaps “offline payment” is a more accurate term for this method of payment now but that’s a post for another day.

Another characteristic of this method of payment – the customer pays only against receipt of goods and not at the time of order placement –  is more relevant in the context of this blog post.

Initially, Flipkart and other ecommerce companies ascribed the runaway success of COD to low card penetration in India. Even the mainstream media went along with their claim that there were very few cards in India. Even at the time, this claim was highly patronizing – I used to pay for my online purchases a decade earlier by credit card. Today, it’s total BS: There are 40 million online shoppers and 870 million payment cards in India. So, there are enough and more cards for every consumer who wants to shop online in India.

If card penetration is not the reason for the overwhelming popularity of COD, what is?

Going by personal experience and anecdotal evidence, it could be friction and failed payments caused by two factor authentication. For the uninitiated, 2FA became mandatory for all online payments in India in 2009. For reasons explained in the below exhibit, 2FA virtually stunted online payments and drove many long time credit card users like me to COD for online purchases.

Cue to the present.

The Government of India demonetized high value currency notes in November 2016. On the back of the “Note Ban”, the government began pushing cashless payments. Trending as #CashlessIndia, the drive has resulted in the proliferation of several new digital payments such as UPI, BHIM, BharatQR and, most recently, Aadhaar Pay.

Credit card, debit card, e-wallet, m-wallet, realtime A2A, biometric – you name it, India has it. I wouldn’t be bragging if I claimed that India has more types (and brands) of digital payments than any other country in the world today. Some of them (credit and debit cards, mobile wallets) involve incumbent banks and card networks (Visa, MasterCard and the indigenous RuPay) whereas others (UPI, BHIM and Aadhaar Pay) disintermediate card networks from the payment value chain. But I digress.

The important point here is some of the recently-launched digital payments have found innovative ways to enhance the CX of online payments and improve their success rates while still remaining compliant with the regulator’s two-factor authentication mandate. Think HDFC Bank’s PayZapp and PayTM.

The proliferation of frictionless digital payments has had an immediate and perceptible impact on brick-and-mortar retail. In a recent newspaper article, one of the doyens of the Indian organized retail industry attributed strong growth of his company’s topline to digital payments.

But not on ecommerce, which still remains stubbornly driven by cash. According to latest reports, nearly 70% of online purchases are paid by COD, with some reports putting the figure as high as 83%.

If that sounds puzzling, it is – but only if you think of payments in the isolated context of its operating model.

If, on the other hand, you look at the end-to-end customer journey, payment plays another role: It acts as a seal of trust placed by the buyer on the seller. In plain English, you pay someone in advance only if you trust them to deliver later. It’s this facet of payment, which is unrelated to the mechanics of its operating model, that drives the primacy of COD.

From personal experience and anecdotal evidence in the recent past, cash still rules ecommerce in India because of the following trust-related reasons:

#1. Delivery Address Ambiguity

While ordering a pizza on Pizza Hut’s mobile app, I reached the checkout page. I was asked to enter my building’s name. As soon as I finished typing in the first three characters of my building’ name (SAT), the app went into a tizzy. It recovered after 2-3 minutes and displayed a long list of buildings from which I had to select one. None of them matched mine. Ditto when I entered the first 3 characters of my street name on the next field of the checkout screen. Since I had to do something to move forward, I selected the option that came closest to my location. (No, the app didn’t allow freeform text entry of my building or street name). The app again went into a tizzy. When it came back, it displayed the delivery address the way it had reckoned it. This didn’t match my real address.

With so much ambiguity in the delivery address, I wasn’t sure if my order would ever reach me. No sensible customer under those circumstances would pay online by card in advance. Neither did I. I opted for Cash on Delivery.

#2. Delayed Deliveries

Once upon a time, I used to work for a computer hardware manufacturer. The company had two standard payment terms:

  1. 25% advance, balance 75% against delivery
  2. 100% advance against 5% cash discount

While the company was otherwise highly ethical in its dealings with its customers, practical cash flow considerations made its managers prioritize deliveries to customers who opted for the first payment term (which is closer to COD) over those who opted for the second payment term (which is closer to online payment).

Looks like ecommerce companies are following the same practice and delaying deliveries to customers who pay online instead of those opting for COD.

Ashish Vyas articulates this problem very well on LinkedIn:

Order a Laptop on 7th April from Flipkart. Expect it to be delivered by 11th April. Delivery partner E-Kart’s phone is not reachable for the entire day on 11th April. The delivery person calls me in the evening to tell me that the delivery couldn’t be done on that day due to manpower shortage and would be done on 12th April 2017, 2.00 p.m. I explain to him that my work is suffering because of the delay in delivery. But he is not bothered and gives me more reasons why he couldn’t deliver on that day. 12th April – Entire day passes, again E-Kart’s telephone is switched off for the whole day. No way I can speak to any executive of Flipkart to understand by when the delivery will be made. Flipkart’s Customer Care only gives an automated response. Now that the money is already with them, they don’t give a damn.

If this guy has learned any lesson from this experience, he’d ditch online payments and opt for COD for his next ecommerce purchase.

#3. Fake / Wrong Deliveries

As I’d highlighted in Beware of Credit Card Reward Redemption Theft, fake / wrong delivery of documents, bills and magazines is a widespread problem. Looks like the epidemic is spreading to ecommerce packages now.

It’s easy for a courier company’s delivery boy – yes, they’re always boys – to falsely log a successful delivery into his app without even visiting the customer’s doorstep. Ergo fake / wrong delivery is rampant, as you can see on this Facebook thread. If you pay upfront, you’d have to chase the courier. If you opt for COD, the courier will chase you. Given the situation, any sensible customer would like to be chased rather than have to do the chasing.

As the above incidents illustrate, many people who otherwise use credit cards extensively turn to Cash on Delivery when it comes to ecommerce (and, ironically, pay by credit card when they receive the goods at their doorstep!). In each example, the choice of the payment method was dictated more by when than how the payment was made. Contrary to what etailers have been saying, lack of cards etc. didn’t have any role to play in the choice of COD in these cases.

This goes back to the raison d’être of COD.

In a recent article in Times of India, Flipkart’s first employee Ambur Iyyappa, spills the beans about the real driver for COD:

By 2010, Flipkart was doing brisk business. But the challenge to scale up was that customers didn’t want to pay for something before getting it. And our delivery partners at that time lacked the infrastructure for cash on delivery. It would’ve been easy for Flipkart to wait for others to build the capability first. Instead, Ekart, Flipkart’s supply chain, launched cash on delivery.

Ecommerce companies introduced COD to overcome the consumer’s distrust about delivery, which, in the case of physical goods, will always lag order placement by a definite period.

I strongly suspect that it’s the same trust deficit that still drives the popularity of COD for ecommerce in India.

I’m guessing that, over time, banks and fintechs will overcome 2FA-related hurdles to greater use of online payments. But I still suspect that delivery risk will keep COD as the most popular method of payment for Indian online shoppers for a long time to come.

In Will The Sad State Of Logistics Hurt eCommerce?, I’d highlighted the growth challenges posed by core logistics (also called “3PL”) to ecommerce in India. It now appears as if the finance side of logistics (“4PL”) is posing existential threats to the industry. Just when the Flipkarts and Snapdeals of India are trying to turn profits, logistics is pushing their customers to COD (or keeping them there), which is reportedly the costliest method of payment for an online merchant.


At last, the mainstream media has started reporting what I’ve been saying for years about the real reasons for dominance of COD in India in ecommerce. Apparently, the same is true in the taxi aggregator market as well.

Also published on Medium.

Ketharaman Swaminathan On April - 21 - 2017


BFSI, CX, eCommerce, Retail, Uncategorized


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  • sketharaman


    Here’s a nice video on how a payment card transaction is fulfilled.

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