What is Cash on Delivery (COD)?

The eCommerce sector in India has experienced remarkable growth in recent years due to the impact of COVID-19 and the digital revolution within the country. Based on the FIS 2023 Global Payments Report, India's eCommerce market is projected to grow significantly from $83 billion in 2022 to $150 billion by 2026.

Despite the widespread adoption of UPI as a payment method, cash on-delivery or pay-on-delivery remains a preferred choice for online shoppers, particularly among tier 2 and tier 3 customers who have transitioned from traditional retail to online shopping. However, eCommerce sellers face various challenges regarding cash on delivery (COD), hindering their business growth. To assist sellers in maximizing the potential of COD for eCommerce, we have created a comprehensive guide that will help sellers to level up their COD game.

What is COD - Cash on delivery?

Cash on delivery is one of the most popular modes of payment in Indian eCommerce. When a customer chooses the Cash on Delivery option during checkout, they can pay for their order at the time of delivery. This means that the payment is collected by the delivery person who acts as an intermediary between the customer and the seller. The payment can be made in cash or through digital wallets such as Paytm, PhonePe, Google Pay, etc., or UPI (Unified Payments Interface), a real-time payment system developed by the National Payments Corporation of India. 

The Cash on Delivery option provides an added convenience to the customers, as they can receive and inspect the product before making the payment.

Why Indian shoppers prefer COD over prepaid

There are several factors due to which Indian shoppers prefer COD over prepaid and it is important to take these factors into consideration for understanding customer preferences in India:

1. Trust factor

Many customers in India are still hesitant to use online payment methods due to concerns about security and fraud. Despite the various advanced security measures implemented by payment companies to safeguard online payments, scammers have still been able to identify and exploit vulnerabilities in the system. Some instances of such scams include:

1.1) Phishing Scams

These scams involve fraudulent emails or messages that appear to be from a legitimate e-commerce site, payment provider, or bank. The message will typically ask the recipient to click on a link and enter their login credentials or personal information. Once the scammers have this information, they can access the victim's account and steal their money.

1.2) Fake Websites

Scammers may create fake websites that look like legitimate e-commerce sites to trick people into making a purchase and entering their payment information. These sites may offer products at prices that are too good to be true or have a poor user interface. Once the scammers receive the payment information, they can use it for fraudulent purposes.

1.3) Card Skimmi

Scammers may use a device called a skimmer to steal credit or debit card information when a customer makes a payment on an e-commerce site. The skimmer reads the card details and sends them to the scammers, who can then use the information to make unauthorized purchases.

1.4) Fraudulent Sellers

Some scammers may create fake seller accounts on e-commerce sites and offer products for sale. They may accept payment but never send the product or provide a fake tracking number. Alternatively, they may send a counterfeit or inferior product.

1.5) Man-in-the-Middle Attacks

These attacks involve intercepting the communication between the customer and the e-commerce site to steal payment information. The scammers may use malware or a fake Wi-Fi hotspot to intercept the information.

COD allows customers to pay for their orders only after they have received and verified the product, which builds trust & security between the buyer and seller.

2. Accessibility & Awareness

‍A significant portion of India's population specially in tier 2 & tier 3 cities and in rural areas do not have access to credit or debit cards and may not have adopted UPI, making it difficult for them to make online payments. There is a need for more awareness in these areas regarding the adaptability of online payment modes. COD enables these customers to shop online without the need for a bank account or a credit/debit card.

3. Easy Returns

‍Cash on delivery (COD) has the advantage of simplifying the return process. In case the customer is dissatisfied with the product, they have the option of refusing to accept the delivery or returning it directly to the delivery person without worrying about the refund. This provides customers with an opportunity to experiment with their purchases, and if they do not like the product upon delivery, their money is not tied up, and they can explore alternative options that they may have already considered.

4. Cash economy

‍Even after a boom and huge transition towards a Digital India, the nation has a long way to complete adaptation especially in tier 2 & tier 3 cities and in rural India. According to the Times of India, Although there has been a significant increase in digital transactions in the financial system, the amount of physical cash in circulation has also risen. As of March 18, 2022, the circulation of cash in the Indian economy had increased by 9.2%, reaching an unprecedented value of Rs 31 lakh crore, in comparison to Rs 28.5 lakh crore in the corresponding period of the previous year. India is predominantly a cash-based economy, and many customers still prefer to pay in cash for their purchases. COD allows them to continue using cash even when shopping online.

Advantages and disadvantages of Cash on delivery orders

Cash on delivery (COD) is a payment option that comes with its own advantages and disadvantages for both sellers and end consumers in eCommerce:

Advantages of COD for sellers

1. Convenience

‍COD offers a convenient payment option for customers who do not have access to credit/debit cards or are hesitant to use them online. They can pay for their order at the time of delivery. Through cash or any other preferred digital wallets like PhonePe or Paytm, etc.

2. Higher conversion rate

‍Offering COD as a payment option can significantly increase the conversion rate of an eCommerce business by making it more convenient and accessible to a wider range of customers. By offering COD, eCommerce businesses can tap into a new customer base that may have been reluctant to make a purchase through traditional online payment methods. This, in turn, can help increase sales, revenue, and customer loyalty.

3. Trust

‍However, with the convenience of online shopping comes a certain level of anxiety and uncertainty for customers, particularly when it comes to purchasing products that they haven't seen or touched in person. Fortunately, many e-commerce businesses have found ways to alleviate these concerns and build trust with their customers.

Customers feel more comfortable ordering online knowing that they can inspect the product before making payment. This helps to build trust between the customer and the eCommerce business.

Disadvantages of COD for sellers

1. Cash management

‍In addition, COD orders require additional steps for payment collection and processing, which adds to the cost and time required for cash management. Most courier companies that offer COD payment processing take more than 12 to 14 days to process the payment and return the amount back to the seller. This delay puts a strain on the sellers in maintaining their inventory levels and having enough working capital.

2. High return rate

‍Cash on delivery (COD) orders are more likely to be returned to sellers compared to prepaid orders. According to industry data, almost 30% of total COD orders are returned back to sellers for various reasons. This is because customers who choose COD may not have the same level of commitment to the purchase compared to those who have already paid for the order in advance. 

Advantages of COD for Consumers

1. Ease of payment

‍One of the primary benefits of COD is that it allows consumers to pay for their purchases at their convenience. They don't have to worry about making a payment online or going to a physical store to pay for their purchase. Instead, they can simply wait for the product to be delivered and pay the delivery executive using the payment method of their choice. With COD, customers can make the payment at the time of delivery, using their preferred payment method such as cash, UPI, wallets, and so on.

2. Quality Check

‍One of the major reasons for putting a COD order is to check the product at the time of delivery before making the final payment. This reduces the risk of accepting wrong or broken items. Sometimes, the product received by the customer may not be as expected or may be damaged during transit. In such cases, the customer may not want to pay for the product and may want to return it.

Disadvantages of COD for Consumer

1. Extra charges

‍COD in most cases comes with the extra fee that customers have to pay for availing of the service. Customers often choose the COD option if they don't trust the seller or the online store or want to physically check the product before making the payment. By opting for COD, customers can inspect the product for any damages, defects, or discrepancies before paying for it, which provides them with a sense of security and satisfaction. 

2. Failed transactions

‍There are times when online payment methods like UPI (Unified Payment Interface) or other digital wallets may fail due to technical glitches or network issues. This can cause inconvenience to customers who may have to opt for other payment options or postpone their purchase altogether. Moreover, there are instances where customers may not have the exact change in cash to pay for the shipment, which can further complicate the payment process.

Different types of payment methods for COD

Shoppers usually pay from the following below options while receiving their orders at the doorsteps, Cash is commonly used for payments, but UPI (Unified Payments Interface) is also widely utilized, along with various other payment methods.

1. Cash

Cash is one of the oldest and most widely used modes of payment. In the eCommerce industry, cash on delivery (COD) is a popular payment option where customers can pay for their order at the time of delivery. 

2. UPI

Unified Payment Interface (UPI) is a popular mode of online payment in India. UPI allows users to transfer money instantly between bank accounts through a mobile app. UPI has become a preferred mode of payment for many eCommerce transactions due to its convenience and ease of use.

3. Debit/Credit Cards

Debit and credit cards are other popular modes of online payment. Customers can use their cards and pay through a card reader. Debit and credit card payments are secure and offer quick and easy payment options. Debit and credit cards are widely accepted and secure payment options for online transactions. They offer a quick, easy, and convenient payment option for customers, and they provide a high level of security and protection for their financial information.

4. Digital Wallets

Digital wallets or e-wallets are mobile apps that allow users to store money and make payments online. Digital wallets like Paytm, Google Pay, and PhonePe have gained popularity in recent years due to their convenience and ease of use. 

How to enable COD services for eCommerce businesses?

To enable cash on delivery (COD) as a payment option for your e-commerce store, you can follow these general steps:

1. Choose a Payment Gateway

Research and select a payment gateway that supports COD. Popular payment gateways often offer COD as an option alongside online payment methods. Swift is a reliable option that not only enables the COD option for customers but also provides Single tap checkout along with prepaid options like debit and credit cards, Digital wallets, EMI/Pay Later, UPI, etc.

2. Enable COD

‍Once your account is set up, navigate to the payment gateway dashboard's payment settings or preferences section. Look for the COD option and enable it. You might need to configure specific settings related to COD, such as order validation or maximum order value. These settings options may change according to different gateway providers.

3. Display COD Information

Update your e-commerce store's checkout page to include COD as a payment option. Clearly state that COD is available and provide any necessary details, such as any additional fees or conditions associated with this payment method.

4. Update Order Process

‍Modify your order processing workflow to account for COD payments. When customers select COD, ensure you have a system to handle the orders appropriately.

5. Communicate with Customers

Provide clear information to customers about the COD process, including expected delivery times, order confirmation, and payment collection. Keep customers informed at each stage of the order, from validation to dispatch.

6. Choose a COD shipping service

Select the right shipping partner which enables your business to COD as well as prepaid shipping and provides wide access across the nation. Make sure to consider important factors like COD order verification, Early COD remittance, and COD to prepaid conversion tools while selecting the shipping partner. You can check out a detailed comparison of the best COD shipping services in India which provides all the important factors to be considered while choosing a COD partner.

In conclusion, Cash on Delivery (COD) remains a popular and highly favoured payment option along shoppers. Its widespread usage demonstrates the importance of offering COD as a viable choice for e-commerce businesses. By enabling COD, companies can not only drive sales but also foster trust and build brand loyalty among their customer base.

At Swift, we understand the significance of providing comprehensive solutions to streamline COD operations for your business. Our suite of tools and services is designed to optimize the COD process, resulting in smoother transactions, minimized returns, and increased sales. By leveraging Swift, you can ensure that your customers have a seamless COD experience, enhancing their satisfaction and encouraging repeat purchases.