Cash-on-Delivery and India

I have been away from India for more than 12 years now and have totally missed experiencing the rapid economic growth that has been dominating Western media. Although I have seen bits and pieces of the evidence for this growth like rising incomes matched with rising prices, proliferation of malls and cell phones, etc., I have never been a part of this growth. However, one thing that has always baffled me is the behavior of online retail. While Amazon has had great success in the U.S., only recently have we seen the rise of Flipkart in India. Portals like Rediff and IndiaTimes often doubled up as shopping sites and I shopped on there a few times to have stuff sent to Indian addresses, the experience was so horrible that I haven’t tried it in the past 6-7 years. So why hasn’t online commerce taken off as rapidly as it did in the West?

One of the most widely believed facts about the Indian e-commerce story is that’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.

Source: Forbes India Magazine .

This article in Forbes gave me a little idea and elaborated on something that I have never seen in the West – cash-on-delivery. This is basically how it worked even earlier before the Internet. You call your local Chinese eatery with your order and thirty minutes later, a Nepali guy showed up at your door with the food and collected money from you. If you ordered enough times, you didn’t even have to pay him everytime but instead maintained a tab that you settled at the end of the month. So why in the hell of secure payment gateways and ubiquitous Internet access would you hang on to such an outdated concept? I had my preconceived notions but I asked my followers on Twitter and received the following responses:

My top two preconceived notions were lack of sufficient credit/debit cards among consumers and prolificacy of black money in form of cash. However, based on my brief interaction, the problem seems to be more systemic than individualistic – lack of trust in institutions rather than lack of infrastructure or any devious intent. People are still not comfortable sharing their credit card information with online retailers; in fact, people are still not yet reliant on using credit cards unlike the West where you are less likely to have more than $20 in cash on you at any given time. But where does this lack of trust arise from? Fear of technology? Or fear of not getting the things you ordered from a place that you can’t physically inhabit. Vikas (in the last tweet highlighted), perhaps mentions, in my opinion, one of the top reasons that drives this lack of trust. You are less or not likely to be taken care of if there is something amiss with your order. You may not have access to a dispute redressal mechanism that is effective and timely and as Nik says, you rather click on COD and wait till you get the item in hand instead of worrying incessantly about it.

Now undoubtedly, retailers like Flipkart are much better at customer service and I have heard nothing but great things about it. Add to that, the gradual entry of Amazon, known for its stellar customer service, in the Indian market will significantly increase the level of trust. However, at the same time, instilling trust in legal and judicial institutions and strengthening incentives to live up to your contractual obligations or rather in India’s case, cracking down hard on contract violations, are key to opening up the market. COD, with all its advantages, is a colossal waste of time and human resources when instead technology backed by trust would be far more efficient. Not every startup can afford to offer the COD option due to significant investment in resources that are not directly related to the product [1].

Abhishek Kumar from IndiCast writing for the Economist:

To secure repeat business, most portals offer incredibly low prices, payment by cash on delivery and, nearly always, free shipping. Consumers love it but companies are scratching around for ways to shed the operational burden. Ironically, the very things that have propelled e-commerce in India could lead to its downfall. When Mahesh Murthy, the boss of Pinstorm, a digital marketing firm, and investor in a few e-commerce companies, purchased a mobile phone online recently, he discovered two invoices in the parcel: one for 28,000 rupees ($530), which is what he paid, and another for 30,500 rupees, which is what the seller apparently paid to his supplier. Such price competition takes its toll.

People might say change is slow and gradual in India but I have seen the rapid deployment of STD/PCO booths and we all know how cellphones became ubiquitous in a short period of time. This was simply due to liberalization in the telecom sector. People talk about eliminating corruption while offering bribes to get ahead in line when instead you can achieve far more dramatic results if you beef up enforcement of contractual obligations (The question of ‘how’ I will leave to the experts). Developing trust among the consumers and the businesses while allowing for a transparent grievance addressal system will go a long way in expanding online businesses on the Internet. If India needs to call itself an IT superpower, it needs to first invest in institutions and policies that will foster such consumer-business relationship. As long as consumers are even relatively convinced that they will not be cheated, they will learn to trust businesses.

I may have oversimplified the issue without offering any concrete solutions but if any of you are aware of any progress being done on this front, please let me know.

  1. Personally I know of at least one example when the founders had to shut shop only to see their idea picked up few years later by a startup in the U.S. []
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  • Anil

    Essentially it boils down to a lack of Trust – in Vendor, Payment channel, options for Redressal, and Rollback.

    This lack of trust usually transfers from several bad experiences with other vendors/suppliers. So a new entrant bears the brunt not as a consequence of their service delivery but on account of those experienced with others.

    When Govt. outlets (registered post, couriers etc) were the only modes because of wide network, I’ve known of people who were delivered parcels with cakes missing, packets with magazines missing, gift items except the items were pilfered, and purchases replaced with used or non-functioning items. I’ve experienced a few myself.

    The supply chain needs to be trustworthy right from – Order placement (portal), Order fulfillment (packing), Order delivery (delivery boys), Order rollback (grievance redressal). Here, trust is generally lacking in each of the above.

    To top it are instances where those who come to deliver around festival time have subjected recipients to “Diwali Hai, kuch bakshish do” knowing full well they won’t be refused because they’ll be the same hands that’ll bring home your next delivery.

    One or repeated bad experience elsewhere is the barrier that faces other vendors.

    (Liked your earlier commenting system better)

    • Patrix

      Thanks, Anil for sharing your thoughts and yup, that’s what I was trying to get at re: trust. The government, I think, could significantly improve things here as it makes enforcement of contracts more tougher.

      I’m glad to see you back; thought of you when I posted a photo yesterday on the ‘new’ DesiPundit :) What about this commenting system you don’t like? I thought it was better coz it was universal.

      • Anil

        Good to see you pick up these topics.

        That’s right. Trust. Govt. needs to enforce contracts, but cannot do much in scenarios involving private players, at least not without making it a long drawn out affair for the end consumer, especially the redressal part.

        In addition the franchisee who is subcontracted the delivery is often the loose link, and the Private Brand/Govt. Agency that subcontracts portion of its operations to private/local players often will not/cannot ensure the quality of service. And the quality of service is in turn dependent upon the quality (and integrity/capability/professionalism) of people employed by the franchisee. Eventually, it’s the people – those who make up the system, and those who monitor it. People. Period.
        An example: some years ago, before one could pay electricity dues online, the Govt. had subcontracted ‘collection’ to some citizens who operated it out of their homes, their regular windows functioning as transaction points. Fair enough. Someone got to earn a monthly payment for offering their home as a collection point, and I got a place to pay bills that was nearby, and the Govt. did not have to expend revenue to set up and staff one. Win-Win for all, or so I thought.
        Only it didn’t work that way. There were times, many times, I’ve done several rounds of one such ‘collection point’ because the resident couldn’t be bothered being at home during the hours specified. People had no choice but to ‘kato pheri’ if they wanted to avoid long travel to the HQ during office hours, and the even longer queues even if they were to make the trip. Good intention got abused. And if the person who awarded the contract is related in some way to the one who got it, no number of complaints would help. A reality.

        Favours are a means to cultivate constituencies so there’s rarely any corrective action taken or enforced. Again, reality. And hence, the power to grant (or refuse) a favour is most coveted in India.
        Trust is large part down to work ethic. And work ethic is culture too. I doubt, more so now than anytime before, if work ethic can be totally divorced in all its aspects from the community, immediate and at large, starting with the family and then, the neighbourhood, and later, community affiliations and so on.
        Acceptability of an action is often (not always) derived from precedents observed in another. It’s here I feel schools can play such a big role in fostering a common work ethic, starting with those where teachers come on time, are present on working days and do not draw Govt. pay on non-existent staff.
        I do read the new Desipundit avataar on and off. Good to see Claude’s photo. He’s tramped around India a fair bit. I remember those days as well. Was good while it lasted. If not for curating the Flickr pool weekly, wouldn’t have had the opportunity to see what’s being photographed and where. And the captions, used to enjoy writing them.
        I used to look forward to the weekly virtual tour. Only later, after ‘the end’, I learned that many used follow it only they couldn’t be bothered to say so (in comments) when it was alive. You did a great job for the duration Desipundit was up.

        (Essentially I felt – Without a field for an url I wouldn’t know who the person is without querying by mail (discoverability), and might’ve helped if the system could allow ‘a connect via Blogger’ since many don’t have a G+ account they’ve populated with data that profiles them. Otherwise no issues).

  • Patrix

    It could be more simple, I thought, but it couldn’t be more Indian!

    Ha! That line is a killer but somehow disappoints me. It’s almost we are equating inefficiency as being something inherently Indian. But I get your point. As I try to explore, culture is at the root but often culture is influenced by external factors; one of which is policy and trust in infrastructure. Change, at least in the area I describe, will not happen overnight.

    Thanks a lot for sharing your anecdote re: Flipkart. I’m sure they struggle with trying to grow their business while trying to keep their customers happy.

    • Parmanu

      “It’s almost we are equating inefficiency as being something inherently Indian.”

      No, that was not the point at all. That whole delivery process I described was dominated by personal contact, by the need for conversation (direct or on the phone), by the notion that a satisfied customer is not someone for whom the job is “done” (on time, in quality, etc) but someone who has been “taken care of personally”. This was the “Indianness” I was referring to, Patrix! The fact that it is inefficient is totally incidental. In fact, this was the whole point about the comment: technology may bring in efficiency, but for people other things may be important. (Viewed this way, between a service that offers a fully automated delivery – via delivery lockers in future: – and a service that allows people to chat with the delivery guy and the lady on the phone, customers may even prefer the latter, who knows!)

      • Patrix

        Of course, it is the people contact that makes it uniquely Indian but the whole inefficiency makes me uncomfortable. But that may be my personal preference and now I do get your point that the inefficiency is just incidental.

        In a way, I’m glad then Flipkart and other Indian vendors do offer that choice but would it be better for them to price that option a little higher since it costs them more? It would be an interesting case study to see what would people choose then.

  • Patrix

    Even – which keeps the money in sort of an escrow account & pays seller after confirmation – sides with sellers often.

    That is very different from how it is in the U.S. where online sites often side with the customers; sometimes to a fault. One of my posts on a dubious buyer on Amazon still gets comments on similar experiences. It has made me wary of selling my wares on Amazon. But buying, it has made me even more comfortable.