Updated on April 10th, 2024

Step into the dynamic realm of Indian e-commerce, where every click shapes the future of shopping. With giants like Amazon and Flipkart dominating the scene, alongside emerging direct-to-consumer (D2C) brands, the landscape is ever-evolving.

In this digital revolution, payment methods play a pivotal role, none more intriguing than cash on delivery (COD). Offering a risk-free option, COD allows customers to defer payment until after delivery, revolutionizing online sales. With 80% of tier 1 and 2 cities embracing COD and metros like Delhi, Mumbai, and Bangalore favoring prepaid, the dichotomy is palpable.

As India’s e-commerce sector anticipates an astounding 84% growth in 2024, the relevance of COD becomes undeniable. Yet, amidst its popularity lies lingering concerns, particularly regarding return to origin (RTO). Join us as we delve into the enduring allure of COD and its profound implications for e-commerce in this captivating blog.

Table of Contents

What is Cash on Delivery?

Cash on delivery, commonly known as COD, is a widely used payment method in India. Here’s how it works: when a customer shops online, they add items to their virtual cart. In the payment step, instead of paying in advance, they choose cash on delivery. This means they pay after getting the order. Though we say “cash on delivery,” these days we use the term POD, meaning pay on delivery. Pay on delivery covers cash and other digital payment options like UPI or scanning QR codes to pay. It’s a simple way to buy things online and pay after you receive them.

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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 the COD 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.

The Flow of Cash on Delivery (COD): Simplifying the Transaction Process

Order Placement: Customers add desired items to their virtual cart and proceed to checkout.
Payment Selection: In the payment options, customers opt for Cash on Delivery (COD).
Order Confirmation: The online store confirms the order, indicating the chosen COD payment method.
Dispatch: Once confirmed, the order is prepared for dispatch to the customer’s address.
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

In the realm of online shopping in India, cash remains the favored payment method. Businesses should strongly consider incorporating COD to thrive in the digital market.

Foster Trust in the Digital Age

Despite technological strides, online scams persist. COD builds trust by ensuring customers only pay when they have the product in hand, mitigating concerns about fraudulent transactions.

Wider Customer Reach

In a landscape where many remain skeptical of card and online payments, especially in Tier 2 and Tier 3 cities, COD has become a pivotal tool. It opens avenues for businesses to connect with more customers and cater to diverse markets.

Spur Impulse Buying

COD streamlines the purchase process, eliminating the need for prepayment details. This simplicity fosters impulse buying, as customers can swiftly make purchases without the additional steps associated with other payment methods. This results in faster checkouts and increased impulse shopping.

As the e-commerce landscape evolves, COD proves to be a strategic choice, aligning with the preferences and behaviors of Indian shoppers.

Cons of Offering Cash on Delivery

Although COD is convenient for shoppers 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

As per a study, delivery partners charge extra fees on cash on delivery orders. Since the delivery partner has to handle the operational cost for returned orders to send back the item to the seller, they levy additional charges on such orders. Not only this, but the seller has to pay the expenses of both forward and reverse logistics. One is when the seller ships the item, and two is when the item gets shipped back to them.

Restricted Cash Flow

Unlike digital payments, which get transferred to online sellers’ accounts almost immediately, cash-on-delivery payments arrive pretty late. This restricts cash flow, and maintaining daily operations becomes a hindrance too. And if there’s a return/refund, things become a lot more complicated.

High Returns

In the case of cash on delivery, buyers have nothing to lose. A study stated that COD is the chosen payment method for a whopping 65% of orders placed on leading e-retail platforms in India. But the real struggle with COD orders is high RTO (Return to Origin).

There is no obligation to accept an order and no fear of prepayment. Since the buyer has not invested himself in the transaction, it’s the online business that has to incur the loss if the customer declines the order.

Refund Issues

The refund policy for cash on delivery is different from prepayments. And it brings along a few challenges of its own. When a COD order is accepted and returned for any reason, the online store sends out a refund form to the customer’s registered email address.

The customer fills in that form and provides their bank account details. Even though the customer has paid by cash, the refund is only sent to the customer’s bank account.

Once the form is received, these details are shared with the team that processes payouts for the refund. The team in charge then makes a one-off payout. They upload the account details on the bank’s portal. Alternatively, they make a bulk payout if there are multiple refunds to be processed.

This is an error-prone, time-consuming, and manual process. Moreover, it takes 5-7 business days for the refund to be completed.

Offer COD Confidently With 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 COD for Risky & Fraud Orders

Magic Checkout gives online stores the flexibility to disable the cash on delivery payment option in real-time for high-risk orders, encouraging customers to prepay. Magic Checkout analyses each order and red flags the high propensity to RTO orders based on customers’ historic RTO patterns across multiple brands in the Magic Checkout network.

Traditionally, companies verify cash on delivery orders by contacting customers, ensuring genuineness, preventing mistakes, and confirming accurate delivery details. However, Magic Checkout eliminates the need for these additional operational steps. It conducts comprehensive address validation, checking for accuracy, gibberish, and completeness. This meticulous process allows Magic Checkout to red-flag high-risk orders, proactively disabling cash on delivery 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 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!