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Counting on cash on delivery
Merchants say cash on delivery method leads to more rejected deliveries and higher costs.
September 8, 2013 7:50 by Muhammad Aldalou
Last year, experts predicted that the ‘cash on delivery’ (COD) model, which constituted roughly 70 per cent of online transactions in the Middle East, would begin to die out as customers turned to the comfort and convenience of paying online.
Surprisingly, during this year’s ArabNet Digital Summit in March, it was revealed that, contrary to former beliefs, COD now represents 75 per cent of online transactions in the region.
Ahmed Alkhatib, founder of MarkaVIP, one of the region’s largest e-commerce players, says that the increase does not necessarily represent a heightened interest in the COD model, but rather a “massive exodus” of people who would normally shop offline that are now doing so online.
“With online payments, I think it’s going to be a natural progression,” he explains. “As companies like us mature and become household names in the market, people will trust our services. It happened in the United States and Europe, and it’ll happen here.”
The e-commerce industry is booming in the Middle East; in the UAE alone, penetration of e-commerce internet users stands at 46 per cent, while the region boasts an average internet penetration of 40 per cent, versus the global 34 per cent.
In July, Omar Kassim, founder and chief executive of online shopping website JadoPado expressed his opinion in a post, where he called on the public and other e-commerce players to ‘say no’ to COD, highlighting the many challenges that this payment method presents.
Kassim is convinced that if the option of paying for a product upon receiving it was no longer a choice for customers, many would gladly begin paying online.
“If customers are not given cash on delivery as an option and assuming that viable offline alternatives do not exist to the service that you are providing, customers are more than willing to pay with their credit cards,” he writes, adding that 60 per cent of customers who shop on JadoPado opt to do exactly that.
Kassim argues that while COD may be manageable within the confines of one country, it still leads to higher rejected deliveries, putting the merchant at risk to bear all of the costs.
“Within the UAE, if you were to transport an item to a customer from a warehouse in Dubai to Ras Al Khaimah, you’d incur the cost to get the item there. If the customer was to reject the delivery, you’d incur the cost to bring it back to your warehouse, without even factoring in the opportunity cost of a rejected delivery,” he continues.
Muhammad Chbib, founder of Desado.com, describes COD as being a “necessary evil” of the e-commerce industry in the Mena region, adding that it enables companies to reach those customers, who either do not have access to credit cards, or those who are, despite all efforts, still not confident in processing payments online.
From the perspective of an e-commerce player catering to the entire GCC region, Chbib reaffirms that cash on delivery encompasses many obstacles, but that no e-commerce player in the market can afford to take the step of eradicating it entirely from their payment methods.
“Generally, offering multiple payment options is a good thing and a sign of a healthy market, but when it comes to cash on delivery, I am wondering if it may actually be hindering the growth of e-commerce in the region. We would appreciate an effort by the GCC [region] to align payment sectors in order to facilitate alternative cross-border payments in addition to credit cards and debit cards,” he says.
Sheriff Rizwan, chief executive officer and co-founder of Alshop.com, says that while COD cannot be ignored, innovation and creativity in processing a COD order can add great value to any business model, adding that banks in the region are playing an important role of turning cash into plastic by introducing prepaid and web cards.
“Although we actively encourage customers to opt for a different payment method, we really can’t ignore COD in the region where it is the first preference,” Rizwan adds.
Would you opt for credit card payments if cash on delivery was no longer an option?