Snapdeal to cut cash-on-delivery by 20% in 6 months

India has the highest proportion of CODs at 60% of total orders, compared to 50% in China, 28% in Indonesia, and 24% in Brazil

Snapdeal is likely to become the first e-commerce company to cut down cash-on-delivery (COD), a service that had attracted shoppers to e-commerce in India. On the back of its $450-million acquisition of Freecharge, Snapdeal plans to reduce COD by 20 per cent in the next six months.

The industry average stands at about 60 per cent for major e-commerce companies in terms of COD in the country.

According to Kunal Bahl, co founder and CEO of Snapdeal, the 20 million consumers from Freecharge who have already started shopping on Snapdeal are all online payment customers who are very comfortable with paying online before delivery of the product. "My sense is our percentage of COD at Snapdeal would substantially drop by 20 per cent over the next six months on the back of Freecharge merger. As a consequence, CODs would be 40 per cent of orders while average of other players is 60 per cent," he said.

The move would result in cost saving for the New Delhi-based firm. "What this would do to Snapdeal, at a blended level, is that rate of returns would see a sharp cut, which means cost of returns goes down and logistics problems will be solved. So, it increases efficiency on a macro level," Bahl added.

According to a Morgan Stanley report, India has the highest proportion of CODs at 60 per cent of total orders, compared to 50 per cent in China, 28 per cent in Indonesia, and 24 per cent in Brazil. However, Russia has a COD pie of about 69 per cent, according to the report.

Flipkart, the poster boy of Indian e-commerce, has about 50 per cent COD, according to the Morgan Stanley report. Snapdeal has 60-65 per cent. Fashion focused e-tailer Jabong, too, has a COD pie of 60-65 while Paytm, which is foraying into pure-play mobile commerce, has 15 per cent. Online food delivery major Foodpanda has 50 per cent COD, the report noted.

As consumers become comfortable with user experience, quality of products and delivery mechanisms of certain websites, their transition from COD customers to online-paying customers is likely to accelerate.

"That will reduce the probability of cancellation or return of goods as psychologically, customers tend to change their mind after ordering a product, given that there is no risk of losing the money. Also, increased stickiness of the customer to that particular vendor (assuming no compromise in service levels) as the overall ease of making payments increases," said the Morgan Stanley report.