Friday 24 July 2015

Fresh trouble for Ecommerce: Vendors losing money as buyers turn back cash-on-delivery orders

BENGALURU: City-based Gurudatt Nadiger started selling containers, vessels and other home requirements on major ecommerce platforms this February. After five months and over 15,000 units sold, Nadiger realised that he had lost more than he had gained, particularly when product after sold product was returned to him. "If a consumer orders a product and then returns it, I have to pay for the logistics for both ways, plus commission, plus tax. For a product costing as less as Rs 200, if the customer returns it, we incur Rs 80-100 on all this," he said. Cancellations and returns are a big problem that all online sellers face. The risk is especially high in sales made through cash on delivery (COD) mode of payment, which has been one of the defining pillars of India's ecommerce boom. 

While the number of mobile wallet users is estimated to jump five-fold from the current 3 crore to 15 crore by 2019, COD still accounts for 60% of all ecommerce orders, according to financial advisory firm Motilal Oswal 

"In COD, a customer is not committed to the purchase, but the seller still ships the product. Consumers today are not willing to wait longer than two days and might buy the product elsewhere and reject the delivery," Nadiger said. According to Sellerworx, a business management platform for ecommerce sellers, 70% of all returns are made up of customers who do not accept deliveries, of which a majority are cash-on-delivery arrangements. In this case, merchants are still charged commission. As India's largest ecommerce companies race to enlist more merchants on their marketplaces, the push to make consumers pay digitally is also gaining pace at companies such as Snapdeal. 

The Delhi-based company, which reports 1,50,000 sellers on its platform, is making a significant effort to encourage customers to pay for products upfront using debit and credit cards. "As more customers opt for prepaid payment options, we have seen significant efficiencies being built into our digital commerce ecosystem," said a spokeswoman for Snapdeal, which sold merchandise worth an estimated $3.5 billion at the end of May

Flipkart popularised cod first

Market leader Flipkart, one of the first online retailers in the country to popularise the cash-on-delivery model, remains agnostic about which payment method customers choose. "We do not have any preference for payment methods as such. But we believe customers should have all the possible payment options available to them for online shopping," said Neeraj Aggarwal, senior director of last-mile delivery. By the end of this year, Flipkart expects to have so
me 1,00,000 sellers on its platform sell merchandise worth $10-12 billion.

But mobile wallet Paytm, which launched its ecommerce platform in February, has seen its cash-ondelivery orders drop from 10% in the beginning to 5% now, said founder and CEO Vijay Shekhar Sharma. "We have the least returns because consumers pay in advance, and merchants prefer that," he said, adding that this may be a trend. 

Analysts are of the view that apart from the loss due to returned goods, merchants also take a hit on credit cycles, when customers pay with cash. "In a cash transaction, merchants receive money only after a product is delivered, for the extra few days, the vendor needs more working capital. There is a cost to it," said Gaurav Gupta, senior director at Deloitte India.

Globally, cash on delivery has proven to be a popular strategy in growing online retail, particularly in emerging markets such as China, Russia and several Southeast Asian countries. However, in China — one of the largest markets for ecommerce — the proportion of cash payments has dropped from 70% in 2009 to 30% last year, giving way to mobile payments, according to business intelligence firm Asia Briefing.

Experts believe a similar trend will follow in India as well. "India is still a cash economy to a large extent, so it will not phase out immediately," said Vishal Gaur, associate dean of Cornell's Johnson School of Management.

"But single workers or working couples are generally comfortable using credit cards or mobile payment options. So it's really a question of the target market."

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