Cash on Delivery Doesn’t Work for Companies

The economics of cash on delivery don't add up

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One of the most widely believed facts about the Indian e-commerce story is that Flipkart.com’s 2010 decision to start offering “Cash on Delivery” (COD)—a payment option that allows buyers to pay for goods at the time of receipt—catalysed the entire sector and set the stage for fantastic growth rates thereafter.

“There is a massive amount of hype that COD, as defined by Flipkart, has redefined e-commerce in India. It is absolute nonsense,” says K Vaitheeswaran, founder and CEO of Indiaplaza.

Vaitheeswaran introduced COD at Indiaplaza back in 2001, when it used to be called Fabmart.com, only to withdraw the option by 2003.

Courier companies who delivered his orders kept COD money for two-four weeks, putting substantial pressure on the fledgling startup’s cash flows.

Worse, many of Vaitheeswaran’s customers told him they found COD more cumbersome than prepaid orders (via credit or debit card) because someone had to be physically present at the time of delivery with cash.

“It is my fundamental belief that people shop online for three reasons: Selection, pricing and convenience, nothing else. COD basically knocks the last one out of the park,” says Vaitheeswaran.

PREPAID TO POSTPAID
The Indian mobile growth story was to a large extent powered by the rise of the prepaid SIM card, which gave customers greater control over their monthly bills while putting their money in the hands of mobile operators upfront.

Taking a cue from mobile operators, Indian Direct to Home (DTH) operators convinced their customers to pay for their monthly TV in advance instead of at the end of a month, as they’d done with local cable operators.

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