Cash on Delivery (COD)…Necessity, Convenience or Both!

With the exponential growth of eCommerce in the Middle East region, we observe the adoption of the preferred payment method (COD) and ask ourselves “What is its future?”, how did the ecosystem evolve in the past years to reach a stage where it is the most selected payment option by far and still growing stronger.

Going back in time to look at the roots of this service, we notice that Cash On Delivery was mostly used to support basic Business to Business transactions in a domestic environment, whether distributors sending goods and spare parts to their customers or very basic shops advertising in newspapers and buyers ordering on the phone. The COD option offered by carriers truly enabled commerce at affordable prices way before credit cards or any electronic payment options were spread. That basic domestic add on service certainly planted the seed to what we're witnessing at the moment.

Fast forward in time, eCommerce players on domestic and regional level started to appear and with it, the payment ecosystem evolved with multiple regional service providers filling this gap. International payment solutions, processors and gateways certainly started paying attention to the huge potential the region has to offer.

What makes COD so much popular?

Trust

There is certainly a lack of trust in pre-paying for products and services fearing that those products will never show up or might be delivered late at best. Naturally, consumers will feel so much relaxed to buy online and see the package before paying. The payment anxiety simple does not exist!. Trust plays even a bigger role when "New" International eCommerce players start promoting into this region.

As the consumer builds good experience and trust with the website, it is more likely that he or she will pay online next time, specially if the COD service has an additional cost to pay and if the consumer has access to other payment methods.

Limited Credit Card Spread

This subject is covered a lot. Credit Cards penetration is certainly on the rise and more consumers are adopting them. UAE is leading the region with the highest coverage and this reflects on the percentage of orders delivered based on COD vs. Electronically paid.

 Prepaid (Debit Cards) to pay online

Banks and others are also providing debit (Pre-filled) cards that enable online payment. The consumer can limit the exposure of fraud by filling them up with a certain amount and use them online when trust with the website is not established.This gives the consumer a safe solution to explore!

 Digital Wallets

Digital wallets will have a very big role to play in this region to democratize the payment options and provide true seamless payment experience. There are lots of initiatives taken by central banks and monetary authorities to provide the infrastructure for such wallets and to build an interoperable model where all payment providers are connected.

In Jordan, multiple solutions are available based on the central bank JoMoPay platform such as ZainCash, Dinarak. The consumer is given a Mastercard instantly to shop and pay online without even the need to visit the bank.

In UAE, there have been many wallets available since 2012. There are many players with BEAM, Etisalat Wallet, along with Apple Pay and Samsung pay. There is also a lot of coverage for the coming Emirates Digital Wallet (Klip App) which is supported by 16 large banks.

In Saudi Arabia, Telecom Operator (STC) the largest in Saudi is launching STC Pay, BayanPay is also launching with multiple filling options including the popular Sadad.

Those wallets will certainly influence the shopping and payment habits of consumers in the region but the adoption will need to be driven hard by both the eCommerce players and digital wallets issuers to create value for all the parties involved in the cycle.

 The Convenience Factor!

That is really a big factor that makes consumers in the region tilt towards the COD. Consumers are now used to the seller(websites) and the delivery carriers follow up with them to get their packages delivered regardless it takes one call or five, one delivery attempt or multiple! So there is really nothing that discourages them from selecting the COD specially when the cost involved is extremely reasonable.This convenience factor is of course affected by the trust factor discussed above.

There is a very interesting behavior when looking at consumers' payment habits, one would be able to see that many consumers would happily pay online when purchasing goods from certain international websites (Say Amazon or Ebay) that only offers online payment , while they switch to the trusted COD for domestic and regional purchases even when made from very trust worthy platforms. So when the product to be bought is available only from international sources, then the consumer would put the convenience aside and the necessity will kick in to pay online!

International eCommerce Jumping on the COD bandwagon

In the past few years, it has been astonishing how COD progressed from being the preferred payment option for Local (Domestic) and regional eCommerce players to be the main one adopted by many successful large-scale International businesses. Such companies based in China, Europe, Asia and even the US started to adapt to the customer needs and drive the growth of their ecommerce by offering COD.

Amazon.com started to offer COD for part of their catalogue to UAE in 2016 before acquiring Souq.com, that was a significant move acknowledging the importance of adapting to the business environment in the region.

This trend of adopting International COD to more destinations and from more origins will play a major role in fueling substantial growth and competition between local,regional and international eCommerce players. This will certainly bring more exciting shopping experiences and bigger varieties to a broader base of consumers, this will also bring healthy growth of business to carriers involved in this space.

There is a lot to be discussed about COD, its' future prospects ,Pros and Cons, best practices to adopt it and mitigate its' risks. Will be covering more in coming articles....