Flipkart's decision to stop cash on delivery (COD) for orders over US$185 (10,000 rupees) to the state of Uttar Pradesh may be the first sign that online retailers are pushing back against the popular payment method.
While COD is essential in a nascent e-commerce market, it can have a large negative impact on business margins, said Vikram Sehgal, vice president and research director at Forrester Research. He was writing in a blog post on Monday, called "India's e-commerce woes: managing logistics challenges in India," which explores the impact the cash on delivery model.
He pointed out given the challenges of high return rates and fraud, especially for COD goods, Flipkart recently announced that it was not going to be fulfilling orders of more than 10,000 rupees in certain areas of Uttar Pradesh.
"This is exacerbated in a nascent market where consumers are testing this new medium of ordering goods, as the return rates can be quite high," he said. Return rates, for when items are not paid for at the time of delivery, ranges between 5 and 25 percent, depending on product category, customer demographics, and their online experience.
"It takes a minimum of 10 days to ship a product to a customer and back to the company if it's not purchased. It causes loss to sellers, selling through Flipkart, as their products get blocked in transit," a senior Flipkart executive told TOI. The report added ransportation and insurance costs were typically proportionate to a product's value.