But, ecommerce in India remains heavily determined by the cash-on-delivery mode of payment — over 50 percent of transactions.
Cash on delivery is the process of shoppers paying for a product in person on its delivery. If the COD buyer fails to make the payment, the item is returned to the vendor. In India, the system was developed to attract mainly rural customers who did not have access to electronic payment systems — such as online banking and credit cards. Cash on delivery has eased much of the increase of Indian ecommerce.
In this post, I will address why Indian shoppers continue this traditional payment path.
Familiarity. Indians are more comfortable with money payments than digital, particularly in rural and semi-urban areas. Probably a villager will be unfamiliar with online banking if he has a bank account or is ready to make payments with a debit card. Instead, he’ll withdraw money from an ATM and use it to complete an internet purchase.
In November 2016, the Indian authorities reduced the amount of banknotes — money — in circulation. This has cut down on ATM withdrawals. But, the normal withdrawal amount is currently higher. The demand for money reached its tipping point in April 2018 when ATMs in a number of states ran out of money, putting additional pressure on the Reserve Bank of India, the country’s central bank, to publish more bills.
Lack of infrastructure. The absence of an electronic payment infrastructure is why many Indians are reluctant to go cashless. Most digital payment gateways need a smartphone and data link. While mobile phone penetration in India will probably be 85-90 percent by 2020 (up from the present levels of 65-75 percent), many observers predict that just half of smartphone owners are going to subscribe to community data service by 2020.
Beyond national highways and major cities, mobile connectivity in India is restricted. Plus, not all smartphone owners have the latest versions and applications necessary to utilize the payment gateways. Thus many consumers shop online using obsolete smartphones in which the only payment option is COD.
Consumers may continue to use money for online transactions even when the mobile phone system is spotty or there are power cuts. Hence most mobile phone users can not jump on the electronic payment bandwagon, not for a couple of years at least.
Lack of trust is probably the most common reason for not using digital payments. Most Indian shoppers are wary of perceived safety risks. They are oblivious of common security measures that protect online transactions. Banks may give them a debit card or similar, but the procedure to use it’s often confusing and intimidating.
Further, reports of increasing incidents of online fraud and information breaches heighten customer worries.
The absence of confidence extends beyond the digital payment systems, however. Many Indians are also leery of online retailers. India has experienced several prominent ecommerce frauds where clients have gotten a fake merchandise or something other than what they ordered. Thus the simplest way to avoid this sort of fraud is COD — is making the payment after a product is delivered and inspected.
Absence of cyber laws. India lacks cyber legislation to protect consumers from losing money or sensitive information during electronic transactions. Even though the new Consumer Protection Bill, 2018 is an improvement over its predecessor — the Consumer Protection Act, 1986 — it doesn’t adequately address online payment and ecommerce frauds, according to many legal observers.
Other laws like the Banking Regulations Act and the Banking Ombudsman Scheme apply in part to online transactions, but the technical and legal roadblocks can make it nearly impossible to prosecute fraudsters.
Moreover, none of the anti-fraud rules govern e-wallets. The Reserve Bank of India’s current plan for electronic wallet organizations to follow the extensive know-your-customer norms can make it much easier to monitor digital payments. Nonetheless, India requires a comprehensive legal framework to control its electronic payments and ecommerce marketplace.
A Long Journey
The Indian cash-on-delivery version has fueled ecommerce. However, the industry must adopt digital payments to expand its growth. Owing to infrastructure and tradition and e-banking hurdles, India’s move to electronic ecommerce will probably be a long trip. Thus international sellers seeking to tap into the Indian ecommerce marketplace should understand the customer psychology and the value of using cash.