Why Pay on Delivery In eCommerce Is A Bad Idea

Why Pay on Delivery In eCommerce Is A Bad Idea

It is clear that Pay on delivery (POD) has come to stay as the most common payment method amongst Nigerian online customers and retailers in the e-commerce business.

This model encourages products to be returned to sellers if unpaid for by the buyer.

Among other advantages, this mode of payment makes it easy to set up for small businesses and does not require the buyer to have a credit card or commit prior to shipment of product. Also on the part of the businesses, they prefer cash payment over credit card payment, since that way they do not have to pay an extra some percent of the price to card company for a transaction.

Retailers want to sell, and are compelled by the demands of the market as purchasers prefer not to be involved in the risk of not receiving the products just as we have pay on delivery has also become popular in other emerging markets such as India, Indonesia and Thailand. Although, the credibility of retailers may also be increased when this type of trade turns out to be successful in a few series.

However, experience of eCommerce sites has not been all good. This is the more reason some of the top e-commerce players such as Konga, Jumia have taken steps to encourage prepayment (Kongapay, JumiaPay) but the effect of this new channels remains to be seen.

It is worthy of note that the customer really has nothing to loose since he/she has not made any commitment in terms of payment, hence, the question of who is bearing the cost of many unpaid deliveries is begging the question. The principal disadvantage for retailers is that many more orders will be returned as buyers are less committed to the purchase than if they had paid in advance.

One of the major disadvantage is the increase in impulse buying on the part of customers who mostly make orders in anticipation of funds. In simple terms, retailers showcase their wares, consumer clicks to buy based on feelings of wanting to have the product despite knowing that the money is unavailable at the time, order arrives and it’s all stories, logistics company calling at the address and the rest is history.

On realising that this is a key risk to the health of its business, ACE Logistics, a contract logistics provider to eCommerce companies has since changed its policy to include a clause that every order dispatched must be paid for. As a matter of fact, ACE operates a non-credit system where all its customers (companies and retailers) must have a compulsory deposits where all orders dispatched will be deducted from. This is a strong business model that might sound conservative but it properly hedged risks of massive revenue loss due to failed deliveries.

One key takeaway pay on delivery trade remains the issue of trust both on the part of customers and retailers. Many Nigerians do not still trust eCommerce companies to deliver on time and in line with product presentation as seen online.

We have seen cases where inferior quality items are sold to customers who forever remain unhappy, and do not want to go through the stress of returning and order in expectation of a replacement which may never happen in months.

Pay on delivery should have been phased-out as soon as the market for eCommerce started showing serious growth.

The challenges faced Jumia and other eCommerce players is not disconnected from the continuous use of pay on delivery which according to data compiled by PageOne markets is about 70% of total sales.

No doubt about it, eCommerce will require time to get into mainstream retail in Nigeria, while it is growing, companies can hedge losses by taking serious stands, working on quality and remodeling their business.

  • If pay on delivery covers for 70% of total sale then will it still not end up being profitable regardless of the failed transaction or returned product?