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 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.

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 So why in the hell of secure payment gateways and ubiquitous Internet access would you hang on to such an outdated concept?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. []