Updated on April 24th, 2024

Cash on delivery (COD) stands out as the favored payment method among Indian shoppers, with a staggering 65% of consumers opting for it in 2023, according to a recent study. However, while COD presents numerous advantages for online customers, it’s essential to shed light on the accompanying disadvantages that e-commerce stores must contend with.

Hence, the perennial question for many e-commerce establishments remains: “to offer cash on delivery or not?” This inquiry forms the crux of our discussion in this blog. Without further delay, let’s delve into the intricacies and key considerations surrounding this topic.

What is Cash on Delivery?

Cash on delivery, often abbreviated as COD or referred to as pay on delivery (POD), is a payment method used by online customers. With COD, customers pay for their orders only after they receive them. The term “pay on delivery” encompasses various payment options, including cash as well as digital methods such as UPI or scanning QR codes. This straightforward approach allows buyers to purchase items online and settle the payment upon receiving the goods.

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Why do Indian Shoppers Prefer Cash on Delivery?

In our tech-savvy era, traditional payment methods like credit/debit cards, net banking, and e-wallets only make up 30% of online purchases. The preference for cash on delivery (COD) is rooted in several reasons:

  • Concerns About Legitimacy: The surge in new online stores raises doubts about their legitimacy, making customers wary of potential scams.
  • Familiarity Wins: Despite technological growth, the simplicity and familiarity of cash payments often trump other methods.
  • Transaction Ease: Cash transactions offer straightforwardness – customers hand over the amount for the product or service, completing the transaction effortlessly.
  • Post-Purchase Anxieties: Lingering concerns about refund duration, non-receipt of refunds, and restrictions from certain merchants contribute to post-purchase stress.
  • Tier 2 and 3 Caution: In smaller cities, online transaction wariness persists, and COD liberates customers from the complexities of card and online payments.
  • Product Assurance: Some customers opt for COD to inspect the received product in front of the delivery person, ensuring its condition before deciding to accept or return it.

In essence, COD instills confidence, providing customers across the country the assurance to shop online without fretting over limited payment options.

Take Flipkart, for example. Flipkart had its inception in 2007 and offered theCOD payment option in 2010. This step made Flipkart exceptionally popular, and it became a household name for online shopping. 

Suddenly, anyone who didn’t have a debit/credit card or a bank account could start ordering products online. It increased the popularity of Flipkart and every other eCommerce business that offered cash on delivery as a payment method.

How the Cash on Delivery Payment Method Works?

  1. Order Placement: Customers add desired items to their virtual cart and proceed to checkout.
  2. Payment Selection: In the payment options, customers opt for Cash on Delivery (COD).
  3. Order Confirmation: The online store confirms the order, indicating the chosen COD payment method.
  4. Dispatch: Once confirmed, the order is prepared for dispatch to the customer’s address.
  5. Delivery and Payment: The delivery person hands over the order, and the customer pays in cash or digitally via UPI/QR Code. The transaction is complete, ensuring a seamless shopping experience.

Advantages of Embracing Cash on Delivery (COD) in E-commerce

Cash Rules: The Preferred Choice

Cash remains the preferred payment method in India. This method enables online customers to finalize their purchases swiftly, making it convenient for both customers and businesses. By embracing cash on delivery, businesses can effectively tap into the Indian market’s payment preferences and enhance their digital presence.

Foster Trust in the Digital Age

In an era where online scams are prevalent, building trust with customers is paramount. COD plays a crucial role in fostering trust by allowing customers to pay only upon receiving the product. This eliminates apprehensions about fraudulent transactions, reassuring customers and encouraging them to shop online with confidence.

Wider Customer Reach

Despite advancements in online payment systems, many individuals in Tier 2 and Tier 3 cities remain skeptical about card and online payments. COD addresses this skepticism and expands the customer base for businesses. By offering COD as a payment option, businesses can connect with a broader audience and cater to diverse markets, thereby enhancing their reach and growth potential.

Spur Impulse Buying

COD simplifies the purchase process by eliminating the need for prepayment details, making it easier for customers to make spontaneous purchases. This convenience fosters impulse buying, as customers can swiftly complete transactions without the additional steps associated with other payment methods. Consequently, businesses experience faster checkouts and an increase in impulse shopping, driving sales and revenue growth.

Reduced Cart Abandonment Rates:

By offering cash on delivery, businesses can mitigate cart abandonment rates, as some customers may hesitate to proceed with purchases due to concerns about online payment security. COD provides reassurance to such customers, resulting in higher conversion rates and increased sales.

Cons of Offering Cash on Delivery 

Although COD is convenient for customers since they get to experience the joy of ordering something online without paying for it, this payment method is inconvenient for eCommerce businesses. 

Extra Cost

When customers choose cash on delivery (COD) as their payment method, they might not realize that it comes with extra fees. Delivery partners charge additional fees for COD orders to cover the costs of handling returned items. This means that not only do sellers have to pay for shipping the item to the customer, but they also incur expenses for returning the item back to them if it’s not accepted. These extra costs can eat into profits and impact the overall business budget.

Restricted Cash Flow

Unlike digital payments that are transferred to a seller’s account almost immediately, COD payments take longer to reach sellers. This delay in payment restricts cash flow, making it challenging to manage daily operations effectively. Additionally, if there are returns or refunds involved, the situation becomes even more complicated, as the funds are tied up for a longer period.

Potential for Fraudulent Orders

Cash on delivery orders pose a higher risk of fraudulent transactions compared to online payments. Since payment is made upon delivery, there is a greater likelihood of customers placing fake or unauthorized orders with no intention of accepting the delivery or making payment, resulting in financial losses for sellers.

High Returns 

Despite its popularity among buyers, COD orders often result in high rates of Return to Origin (RTO). Since buyers don’t have to make any upfront investment, they might be more inclined to return items they’re not satisfied with. This can lead to significant losses for online businesses, as they bear the cost of shipping and handling for returned orders.

Refund Issues

Handling refunds for COD orders can be a cumbersome process. Unlike prepayments, where refunds can be processed directly to the original payment method, COD refunds require additional steps. Customers need to fill out refund forms and provide their bank account details for the refund to be processed. This manual process is prone to errors and can take several days to complete, causing frustration for both customers and sellers.

Offer COD Confidently With Razorpay Magic Checkout

While Cash on Delivery (COD) boasts advantages, it comes with its share of challenges. e-commerce stores face uncertainty regarding the authenticity of customers, raising concerns about potential fraud, such as dummy orders or incomplete/invalid addresses. While COD expands customer outreach, it may not suit every business.

To navigate these challenges and prevent cash on delivery refunds/returns, Razorpay introduces Magic Checkout. This solution aids e-commerce businesses in identifying risky orders, ensuring a more secure and streamlined transaction process. With Magic Checkout, businesses can enhance the reliability of COD transactions, making it a valuable tool in the diverse landscape of online payments. Brands like 

Disable Cash on Delivery for Risky & Fraud Orders

Cash on delivery- Option to enable and disable

Razorpay Magic Checkout provides online stores with the flexibility to disable the cash on delivery (COD) payment option in real-time for orders deemed high-risk, thereby encouraging customers to opt for prepayment. Through advanced analysis, Magic Checkout evaluates each order and identifies potential risks of RTO based on customers’ historical RTO patterns across various brands within the Magic Checkout network.

Traditionally, companies verify COD orders by directly contacting customers to ensure authenticity, prevent errors, and confirm accurate delivery details. However, Magic Checkout streamlines this process by conducting thorough address validation, meticulously checking for accuracy, coherence, and completeness. This meticulous validation process enables Magic Checkout to identify and flag high-risk orders, proactively disabling COD payment and simplifying the entire transaction process for eCommerce stores.

RTO Protection

Razorpay provides e-commerce stores with RTO protection on all Razorpay Magic Checkout fulfilled orders. Magic Checkout wants eCommerce businesses to incur less loss, and that’s why Magic Checkout is here to absorb the RTO costs. It can help eCommerce businesses overcome RTO losses and boost growth. 

Multiple Payment Options

In the past, customers had to choose between cash on delivery (COD) and online payments, each in its own category. Online payment methods like cards and UPI were listed separately. Now, with Magic Checkout, all payment options, including COD, appear together in one view. This simplifies the process for customers, allowing them to easily select their preferred payment method and place an order without any confusion. No more switching between different categories – just a straightforward and convenient way for customers to choose and complete their payment.

Wrapping Up

Cash will continue to rule, but finding a way to deal with cash on delivery order challenges will save e-commerce businesses from losing profits and revenue. So, rather than pondering whether one should enable cash on delivery or not, try Razorpay Magic Checkout and see the magic happening when your customers reach doubles and RTOs get covered!

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