Cash on Delivery for Ecommerce: Still Useful or Past Its Sell-By Date?
Many of today’s online retailers are getting rid of cash payments, but they may be jumping the gun.
When the global stock market crashed in 1989, the then Volvo CEO famously declared that “cash is king”, but if he were to glance at today’s cash on delivery ecommerce statistics, he may find that it’s about to be dethroned.
The digital shift toward e-commerce is breaking down the structure of the traditional retail market, with cash payments being one of the main pillars to fall. Indeed, cash on delivery (COD) starts to look like an outdated notion that’s out-of-step with the range of digital logistics solutions around today.
It’s a trend keenly felt in the UAE where cash-on-delivery payments have dropped by 75% since the start of the pandemic, according to Visa’s Stay Secure consumer survey.
Such a stark change of habit presents a dilemma for UAE retailers and logistics companies, who find themselves grappling with several related issues, including:
Providing COD to a significant portion of their customer base who are restricted to (or prefer) paying in cash
Meeting the demands of a fast-moving digital society
Working out which solutions are the most cost-effective for their business.
This uncertainty is further compounded by the fact that UAE consumers still expect a wide variety of payment options. The same Visa survey found that almost half of them expect to have the choice of paying in cash from retailers that they trust.
What’s more, just a few years ago, in 2016, three out of four online shoppers in the Middle East said they preferred a cash method of payment, according to data firm Visual.ly.
Source: Visual.ly
If you’re a CEO or marketing manager at one of those retailers, you may find this data conflicting and be asking yourself a flurry of questions.
Have all of these people changed their minds in such a short space of time? Should you drop the COD option from your service, or will doing so damage your business?
This article seeks to answer some of these questions by examining the benefits and challenges of cash-on-delivery services for e-commerce businesses in the UAE.
In doing so, we aim to find out whether it’s really worthwhile keeping a COD order option active as we enter the new digital era.
Looking for a delivery solution that offers cash payments without the stress? Swftbox’s AI engine uses smart analytics and automated scheduling to keep COD success rates high. Plug in your storefront in just five minutes to get the best of both payment worlds.
What is cash on delivery in ecommerce?
Cash on delivery in the ecommerce industry is a mix of the old and new retail worlds. Customers buy products online and pay for them at the moment of delivery, instead of making advance online purchases.
The service is also known as ‘cash on demand’ or ‘collect on delivery’, and it was a standard feature of the early internet era. As such, retailers offering cash as a mode of payment have long been taken for granted by many UAE consumers, particularly those of an older generation.
The conflict between old-fashion payment methods and newer digital innovation has provoked debates between business leaders across many industries, and the delivery sector is no exception.
Any direct-to-consumer (D2C) businesses trying to work out whether a cash-on-delivery payment option is part of their future should look at the challenges and benefits that directly affect their company’s performance.
The challenges of cash on delivery
The 75% drop in cash payments isn’t just due to the pandemic, as significant as that was.
A higher awareness around hygiene that afflicted the use of notes and coins has been supplemented by several other economic factors that have been in the pipeline since well before March 2020.
Higher RTOs
Cash on delivery increases the chances of an RTO for several reasons.
If a customer opens a delivery and doesn’t like what they see inside, they can simply refuse to pay the delivery person.
And that’s even if the delivery meets the SLA.
Cash delivery success rates tend to be lower than prepaid orders for several reasons, including:
Customers who are absent due to poor tracking information
Poorly written address info, due to the recipient not being as committed to the process as a prepaid customer who wants to be sure they’ve received something they’ve paid for
The customer not having the correct cash amount
A poor cash delivery success rate means that more packages hang around in the system until the recipient becomes available, causing unsightly and expensive backlogs.
Higher return costs are the inevitable result of higher RTOs, and it’s the retailer who foots the bill.
The multiple challenges associated with same-day deliveries means that returned deliveries often incur extra third-party costs from providers who might charge extra to cover their operational costs, not to mention the added hassle of actually handling the cash.
The accumulation of these extra operational costs means the customer pays more, as retailers feel compelled to raise their prices to absorb the increase.
2. Restricted business cash flow
Another big selling point of digital payments is that they are instant. The moment the customer authorizes the online transaction is when you, the seller, gets the money.
Cash payments, on the flip side, mean waiting for the funds for however long it takes to deliver the goods, and for the money to make its way back to your company’s coffers.
Delayed deliveries mean the cash is tied up for even longer, until you’re able to resolve the issue.
Just like a backlog of packages can clog up a delivery system, an absence of funds restricts your company’s cash flow, with less cash available to keep outgoings ticking over, and more chances of annoying suppliers.
3. Higher trust in digital payment methods
An increasing reliance on digital payment forms is making consumers more adept and comfortable with using them.
The UAE has one of the most advanced digital economies in the MENA region, including the highest smartphone penetration, according to the International Trade Association (ITA). Delivery customers are already used to high-tech options such as ecommerce platforms, digital payment options and last-mile tracking.
Familiarity and ease-of-use means that credit and debit cards and digital wallets, too, are becoming the go-to methods of choice for consumers, pushing cash payment toward the back of the line.
With digital payment providers growing in number and digital security improving, online retailers are increasingly graded by the quality of their digital payment options, rather than whether they have cash facilities or not.
The benefits of cash on delivery
Cash is proving to be a stubborn payment form for several reasons that many people overlook amid the bombardment of digital services today.
Unbanked customers
According to the UAE Federal Competitiveness and Statistics Authority, a third of the UAE’s population (around 1.7 million people) didn’t have a bank account in 2022.
There are several reasons for this. UAE banks tend to impose high minimum deposits on new customers when opening a bank account, which can be as much as AED 5,000, so those on a low income, the retired, or those who are simply unemployed find it difficult to gain access to the local banking system.
Cash on delivery, then, keeps this section of the market open to those retailers able to provide it.
Cash payments also help sections of society that may not immediately spring to mind. Victims of abuse may have bank accounts, but wish to keep certain transactions secret from a controlling partner.
Being able to deal in cash may not just be a help to them, but a potentially life-saving act.
2. Stronger feelings of security
The steep rise of online payment cards and digital wallets has been freckled with certain growing pains as consumers come to terms with an increasingly digital society.
Trust issues are at the heart of these, with many consumers put off by frightening stories about online scams and credit card fraud. First-time buyers are also often hesitant when it comes to trusting a new website.
Like it or not, consumers are still taking a leap of faith when advance paying for the goods online: they’re trusting the retailer to treat them fairly should any issue arise, something that isn’t always a given.
Cash payments, then, offer these consumers a feeling of familiarity and control; they can literally carry out the transaction with their own hands, easily removing their dependency on online payment transfers that they can neither see nor feel.
For retailers seeking to grow their customer base, offering cash options is a great way to breed loyalty among card-skeptical consumers.
3. Impulse buys
Online shopping cart abandonment continues to haunt retail companies, even in the era of instant electronic payments.
In the EMEA region, the ecommerce abandonment rate averaged around 70% in 2022, according to data firm XP Squared, costing online start-ups there a share of the estimated $18 billion global cost of abandoned carts.
The rate of cart abandonment for EMEA ecommerce companies (2022)
A key contributing factor to high abandonment rates are impatient customers who are much more likely to jump ship if they have to suffer through long user journeys that involve logging in to a complex online payment account or entering credit card details at the POS.
A cash payment option removes these steps, making it possible to complete the checkout process in just a few seconds. This is often enough to seal the deal for an impulse buyer who might not act on such a whim if they have time to think about their purchase as they reach for their card details.
Online ecommerce stores have long relied on impulse buys to boost their bottom line. Having a cash-on-delivery option is the conduit that keeps this particular revenue stream alive.
Cash on delivery in the digital era: The best of both worlds
Removing the option to pay cash on delivery may make sense to D2C businesses pursuing the benefits of a contactless payments era, but they may be missing a trick.
Yes, a cashless system leads to the cost benefits of lower RTOs and smoother delivery operations, not to mention keeping your digitally-savvy customers happy, but is isolating the scores of bankless or technophobic buyers from your customer base a price worth paying?
The good news is that the Web 3.0 digital era is proving to be even better at solving dilemmas than it is at creating them. For ecommerce websites, a solution in the form of cutting-edge digital logistics platforms is changing the delivery landscape.
Using the latest live tracking technology, platforms like swftbox allow companies to keep customers informed of each stage of the last-mile process, so they know where their package is at any given moment. swftbox also provides a smart scheduling option, so that buyers can arrange their time of delivery, and drivers can plan their most efficient routes.
Customers are thus much more likely to be at home to pay cash on delivery, boosting success rates, and slashing the costs of missed SLAs.
With swftbox, cash on delivery doesn’t have to be part of the old world any more, but rather part of a hybrid of digital and cash solutions that let retailers and customers enjoy the best of both worlds.
Ready to receive both cash and digital payments with ease? Sign up with swftbox in just five minutes to easily integrate our logistics platform with all your payment gateways.
