Over the past decade, e-commerce has changed the way people shop in India. With easy access to the internet and smart devices, online shopping has become the most preferred form of buying. Research reveals that the e-commerce market is expected to grow by 21.5% and hit $74.8 billion in 2022. Despite the digital transition, when it comes to shopping, one factor that still influences customers to shop online is cash payment. Approximately half of all transactions in most Indian cities involve COD. In tier 2 and 3 cities, 70-90% of transactions are cash on delivery.
Why do Customers Prefer Cash on Delivery?
For a customer, CoD is a familiar, traditional payment method. On the merchant’s checkout page, the buyer only has to provide details such as their name, number, email and delivery address. They simply have to choose the ‘Cash on Delivery' option as the payment method. Reasons for COD as the preferred option can be the following:
Fear of being defrauded: With so many D2C brands in the market, it is understandable that first-time customers fear being scammed. Hence they prefer to receive the product before making payment.
Familiarity with cash payments: Cash payment is the easiest form of transaction and doesn’t require technical know-how. Therefore, most customers, especially senior citizens prefer making cash payments.
No confidence in the product: Some customers like to check the product in the delivery person’s presence and then decide whether to accept or return it. Cash on delivery allows them the option of checking before paying.
Post-purchase service anxiety: If a D2C brand is relatively new in the market, the customer may worry about the post-purchase refund process, for instance, if the product is non-refundable, the time taken for the refund etc.
Lack of secure online transactions: In tier 2 and 3 cities, customers are particularly wary about online transactions. Cash payment gives them the confidence to make purchases.
Challenges of COD
Offering a COD option helps a merchant gain customers' trust, reach more customers and at times, encourages impulse buying. But the challenges of cash payment options outweigh the advantages. Here’s how:
- Additional Cost
For a seller, a COD order means an additional delivery fee. Since the logistics partner has to take into account the operational cost of returned orders, they levy additional charges. The seller has to pay the expenses of both forward and reverse logistics before he can account for the sale as revenue.
- Blocked revenue
Online payments are credited to a seller’s account almost immediately whereas COD payments get completed once the buyer receives the order and pays for it. Unless the order is complete, the seller cannot account for a successful sale. There’s a risk of return or refund.
- High Returns
When a buyer selects COD, he has nothing to lose. The real struggle with COD orders is high Return to Origin (RTO) risk. With no pre-payment made, the buyer is under no obligation to accept an order. For the seller, it results in a dent in revenue.
Tackling COD with Blaze
There’s no denying that COD helps attract additional customers and instills customers’ trust, but a seller can never be sure whether the buyer is a genuine buyer or a fraudster. Typically, a buyer calls his customers with COD orders to check if the order is genuine, and whether the shipping address is correct. With Blaze, companies no longer have to go through additional operational hassles. Blaze spots the riskiest buyers before they damage a business with excessive returns. Blaze automates the process of sifting through COD orders, assessing the risks and preempts RTO losses without compromising GMV.
Disable COD for Risky & Fraud Orders
Blaze provides the flexibility to disable the COD payment option in real-time for high-risk orders, encouraging customers to prepay instead. It analyses each order and red flags orders with a high propensity to RTO based on customers’ historic RTO patterns across multiple brands in its network.
Blaze’s AI/ML-powered comprehensive RTO Risk Assessment (RTO) solution validates and identifies risky users by accessing their past buying behaviour, successful deliveries, and instances of returns.
Blaze comes with ‘100% RTO Protection’, a financial guarantee on RTO orders for trustworthy customers across Bureau’s Trust Network. Every transaction approved by the Blaze system is underwritten for RTO loss by Bureau.
Despite the drastic transition to online shopping, cash payments are still preferred by tier-2 and Tier-3 consumers. Dealing with the challenges that COD poses for buyers will be the driving force for e-commerce players’ growth. Having COD as a payment option can be an advantage with Blaze’s AI-powered order risk assessment where increased revenues and RTO prevention are a new reality. To know more about Blaze, click here