Getting in Bed with ₹COD (Cash-on-delivery)

Ah, Cash-on-Delivery (COD)—the safety net for the hesitant Indian shopper and the nightmare for D2C ecommerce brands. It’s like making plans for dinner, but you’re not sure if they’ll show up or foot the bill. COD is a love-hate relationship, but for Indian D2C brands, it’s often more hate than love. 

Why? Let's dive deep into “Getting in Bed with COD (Cash-on-delivery)”, and the data-backed reality of COD and why it’s slowly becoming the frenemy of ecommerce.

Cash-on-Delivery (COD) remains a dominant force in Indian e-commerce - COD constituted 55% of the total online transactions in 2023, the number was 86% back in 2012

COD isn't just a payment option; it's a cultural choice deeply rooted in the Indian consumer's psyche. We need to understand and adapt to these cultural nuances to succeed in the conversion market.

Digital payments are all the younger generations, the Gen Zers & Gen Alpha, have ever known. But we are not there yet.

Dramatic Plot Twists:

COD is used because of lack of trust, or because some consumers think COD is the loophole. But either way, the brands suffer great losses in the COD market, because of dramatic plot twists they are prone to.

30% of all first-time online shoppers in India choose COD as their preferred payment method

COD is like a welcoming handshake for new customers. It breaks down barriers and opens the doors for them to experience online shopping.

COD ensures no one is left behind - be it urban, semi-urban, or rural.

But, COD buyers Plays Dirty: 

Incorrect change during delivery? They return

Delayed COD orders? They cancel

Product damage? They return

Mismatch? They might not replace

Etc. 

The Unstable Romance with COD (Cash-on-delivery):

Even with all the drawbacks, brands ensure one of the most loved payment modes sticks around.

But a pragmatic brand would remember safety comes first, for themselves - to minimise losses.

Smart Disabling COD with data from 500+ brands

1. The True Cost of RTO (Return to Origin): An Operational Black Hole

For COD orders, 30-40% of them result in RTO, significantly higher than prepaid orders, which have a return rate of only 5-7%. RTO not only disrupts inventory management but also leads to double logistics costs, labour wastage, and sunk inventory costs.

Real-World Example: A mid-sized D2C brand shipping 10,000 COD orders per month at an average RTO rate of 35% and an average logistics cost of ₹100 per order sees:

• RTO Orders per Month = 10,000 × 35% = 3,500 RTO orders
• Logistics Cost per RTO Order = ₹100 × 2 (outbound + return) = ₹200
• Total Monthly RTO Logistics Cost = 3,500 × ₹200 = ₹7,00,000 per month
• Annual RTO Cost = ₹7,00,000 × 12 = ₹84,00,000 per year in logistics alone!

• This is not factoring in other hidden costs such as labour, re-packaging, and lost sales due to stuck inventory. COD orders significantly bloat operational expenses, eroding profit margins.

2. Customer Intent: Higher Cart Abandonment and Delayed Payments

COD (Cash-on-delivery) purchases come with higher cart abandonment rates and longer cash realisation cycles. Studies show that COD carts are abandoned at a rate of 45-55%, while prepaid cart abandonment stands at just 25-30%.

This extended payment lag for COD often affects cash flow. Brands have to wait for several days post-delivery to receive payments. For businesses running tight operational margins, this can cripple working capital.

Imagine running a D2C brand with a monthly order volume of ₹50 lakhs, 70% of which are COD orders. The delayed cash realisation for those ₹35 lakhs of COD orders could stretch working capital and increase the brand’s reliance on loans or external funding.

3. RTO-Prone Zones and Regional Disparities: Unequal Playing Field. Utilising Geolocation Data for Risk Assessment.

COD performance varies dramatically across regions in India. A study by Delhivery found that Tier 3 and rural areas have RTO rates of 40-45%, while Tier 1 cities hover around 15-20%. If a D2C brand is unaware of these regional differences, they might end up losing up to 50% of revenue in COD-heavy areas.

Geolocation data can provide valuable insights into the reliability of delivery addresses. By analysing geographic patterns, brands can identify high-risk areas and take preemptive measures.

Applications:

• Address Verification: Ensuring that the provided addresses are valid and deliverable.
• Regional Risk Profiling: Classifying areas based on historical RTO and fraud data.
• Dynamic COD Policies: Adjusting COD availability based on the geolocation risk profile.

Impact:

A D2C electronics brand used geolocation data to identify and block high-risk pin codes for COD. This led to a 20% decrease in RTO rates and improved overall delivery efficiency.

D2C brands can leverage logistics data to disable COD in RTO-prone zones or offer it conditionally for certain pin codes. This helps mitigate risks of logistics-heavy losses.

4. Smart Disabling of COD (Cash-on-delivery): A Data-Driven Lifesaver

With access to customer and geographical data, some advanced D2C platforms have developed smart COD disabling based on risk assessments. Here’s how this works:

• Serial Return Abusers: COD is automatically disabled for users who have a return rate of 40% or higher.
• Fraudulent Users: Cross-referenced with 500+ brands, fraudulent users or users with invalid details are automatically flagged and blocked from placing COD orders.
• Pin Code Risk Assessment: Pin codes with RTO rates of over 35% have COD disabled to reduce losses.

By implementing this strategy, one leading D2C brand was able to reduce its RTO from 30% to 18%, translating into a savings of ₹50 lakhs annually.

5. Fraud and Fake Orders: The COD Scam Artists

Fraud is another bane for COD-heavy ecommerce. Fraudulent customers place high-value orders and either disappear or reject the parcel, causing huge inventory and logistics losses.

According to a report by Razorpay, about 8-10% of COD orders are fraudulent. For a brand generating ₹50 lakhs a month in COD sales, the losses from fraudulent orders could amount to ₹4-5 lakhs annually.

Automating COD verification via OTP or a simple SMS check before dispatch can reduce this number by 25-30%.

6. Automated Verification: The Saviour of Order Integrity

To combat COD-related fraud and reduce return rates, many brands have implemented automated COD order verification. This process includes:

• OTP Verification: Orders above a certain value (₹1500+) are verified through an OTP sent via SMS or WhatsApp.
• Automated Calls: A call confirmation to ensure the customer still intends to receive the order.
• WhatsApp Confirmation: Automating a follow-up message before shipping reduces the possibility of non-serious buyers.

A case study from an Indian D2C fashion brand showed that automating COD verification reduced their RTO rate by 18% and saved them ₹30,000 monthly in logistics costs.

7. Why Prepaid is the Way Forward: Data-Driven Conversions

COD (Cash-on-delivery) is a necessary evil for many brands, but a shift towards prepaid orders can help maintain profitability. Offering instant discounts or cashback for prepaid orders can push customers toward prepaid options.

Data-backed Incentives:

• Prepaid orders incentivized with 5-10% discounts have been shown to increase conversions by 12-15%.
• Offering ₹100 cashback on prepaid orders has led to a 22% reduction in COD reliance for some brands.

8. Inventory Freeze and Lost Opportunity Cost: The Slow-Moving Nightmare

RTOs mean stuck inventory. Items that could be selling quickly on your store remain stuck in the return cycle for weeks. For brands running lean inventories, this can lead to stock-outs for fast-moving products or launch delays for new collections.

Brands must account for the opportunity cost of inventory being stuck in transit during RTOs and adjust their stock replenishment strategies accordingly.

9. Leveraging Predictive Analytics and Machine Learning

Predictive Analytics can be a game-changer in forecasting potential COD risks. By utilising machine learning algorithms, brands can analyse vast datasets to identify patterns and predict which orders are likely to result in RTOs or fraud.

Key Approaches:

• Customer Behaviour Analysis: Tracking past purchase behaviour, frequency of returns, and payment preferences to assess risk.
• Order Pattern Recognition: Identifying anomalies in order sizes, frequency, and geographical locations that may indicate fraudulent activity.
• Real-Time Risk Scoring: Assigning a risk score to each order based on multiple parameters, enabling dynamic decision-making on whether to allow COD.

Real-World Example:

A leading D2C electronics brand implemented a machine learning model that analysed over 100 variables per order, including customer demographics, order history, device type, and regional data. This model achieved an 85% accuracy rate in predicting high-risk COD orders.

By adjusting the risk score thresholds, the brand could dynamically enable or disable COD, reducing overall RTO by 25% and fraud by 15% without significantly impacting conversion rates.

10. Introducing Subscription Models

Shifting from one-time purchases to subscription-based models can reduce dependency on COD (Cash-on-delivery). Subscriptions often require upfront payments, ensuring steady cash flow and reducing the risks associated with COD.

Advantages:

• Predictable Revenue: Regular payments ensure consistent cash flow.
• Customer Loyalty: Subscriptions foster long-term relationships with customers.
• Reduced RTO Risk: With ongoing commitments, the likelihood of returns and RTOs diminishes.

Case Example:

A D2C meal kit service introduced a subscription model requiring upfront monthly payments. This shift resulted in a 30% decrease in COD reliance and a 20% increase in overall revenue due to higher customer retention rates.

Key takeaways on COD Solutions (Cash-on-Delivery):

1. Smart disabling COD (Cash-on-delivery)

The advantage of data from individual consumers across 5000+ brands, is that we also have the information on..

• Serial return abusers
• RTO prone zones
• Fraudulent user data, and more

Enabling us to gauge the risk level of a user, based on which the brand can choose to disable COD for those users through automation.

This strategy alone has shown to reduce RTO by 30%, boosting net profits significantly.

2. COD (Cash-on-delivery) automations & more

Engineering automations/flows in place to reduce the probability of an RTO costs nearly nothing, compared to the alternative.

40% of e-commerce companies face challenges related to COD orders…

Adaptation is not a choice; it's a necessity. 

So, we automate marketing & communication strategies with hyper-personalisation.

A. Offering incentives for non-COD payments - based on age, past purchase data etc

B. Automate verification and confirmation

• Send a verification message once the COD option is chosen
• Ask for order confirmation on a consumer preferred channel 
  

Brands can make the procedure strict based on the risk level of the consumer. For example, if the user is a loyal customer, the confirmation step can be omitted. 

Whereas, if the user is prone to returns, the brand can choose a mandatory confirmation step to go through with the order.

C. Leveraging technology to enhance the COD process - providing a seamless experience with the help of real-time data across the board

D. Partnerships with payment gateways and banks

E. Rise of digital payment methods

According to a report by NPCI, UPI transactions in India grew by 75% in 2023, reaching a total of 40 billion transactions

F. Penalise Serial Abusers

Some forward-thinking brands have introduced penalties for COD return abusers, such as temporarily blocking them from placing COD orders. This has reduced abuse rates by 15-25% across the board.

Other ways to Limit COD and/or COD Losses

(Summary of Strategies to Minimise COD Losses)

1. Minimum Order Value (MOV) for COD (Cash-on-delivery): Filtering Out Low-Value Losses

One effective way to reduce the cost burden of COD is to set a minimum order value (MOV) for COD transactions. Smaller orders often come with disproportionately higher logistics costs, and low-value customers are more likely to reject COD deliveries.

2. Charge COD Convenience Fees: Shifting the Cost Burden

A COD convenience fee can act as a deterrent for unnecessary COD orders. Charging a nominal amount, such as ₹50-₹100 for COD, incentivizes customers to choose prepaid options. While many customers are still likely to select COD, the fee helps cover some of the additional costs incurred due to RTO and fraud.

Case Study: An Indian D2C footwear brand implemented a ₹60 COD charge, and within three months, they saw:

• 15% increase in prepaid orders
• 10% reduction in RTO for COD orders

3. Real-Time NDR Management: Addressing Failed Deliveries Immediately

Non-Delivery Reports (NDR) occur when the first delivery attempt fails. In many cases, COD orders fail due to reasons like "customer not available," leading to second or third delivery attempts, which increases costs. Implementing real-time NDR management helps brands immediately communicate with the customer and fix the issue (such as confirming the address or delivery time).

Automated NDR Systems:

• Real-time alerts sent via WhatsApp, SMS, or email when an NDR is generated.
• Allowing customers to reschedule delivery instantly.

Real-World Data: Brands that implement automated NDR management see a 30-40% increase in successful deliveries after the first failed attempt, significantly lowering the chances of RTO.

4. Courier Partner Selection: Prioritising COD-Focused Logistics

Choosing the right logistics partner is crucial when handling COD orders. Some courier partners offer specialised COD management services, including cash handling, COD risk analysis, and automated NDR management. D2C brands can optimise logistics by partnering with carriers that have lower RTO rates and offer quicker remittance for COD payments.

Best Practices:

• Partner with couriers that have a 30-35% RTO rate (industry average is 40%).
• Choose couriers with a remittance time of 7 days or less for COD payments.

Real-World Example: A Delhi-based D2C fashion brand partnered with a logistics company that offered a 20% RTO rate for COD and reduced their RTO losses by ₹12 lakhs per year.

While the premium partner had slightly higher logistics fees, the lower RTO rate and faster remittance led to significant long-term savings for the brand.

5. Dynamic COD (Cash-on-delivery) Offering Based on Customer Profile

Not all customers are equal when it comes to COD. By leveraging customer profiling data, brands can offer COD only to trusted repeat customers or those with a history of successful transactions. First-time buyers, high-risk regions, or customers with a history of rejected COD orders can be nudged towards prepaid payment options.

How It Works:

• Trust Scores: Develop a customer trust score based on purchase history, RTO rates, and delivery success.
• Dynamic Payment Options: High-trust customers can be offered COD without restrictions, while low-trust customers are only shown prepaid options or limited COD with added verifications.

Case Study: A D2C electronics brand used customer trust scores to limit COD availability. This strategy led to a 22% drop in RTO for COD orders and improved overall delivery success by 15%.

6. Preemptive Blocking of High-Risk Orders

By analysing real-time customer behaviour and data patterns, some brands preemptively block COD for high-risk orders. This includes:

• Unverified contact details: If phone numbers, email addresses, or delivery addresses can’t be validated, COD is automatically disabled.
• Suspicious order patterns: Large or multiple COD orders placed within a short period may indicate fraud.

Implementing such measures can reduce fraudulent orders and prevent revenue losses.

Example: A furniture brand reduced fraud-related COD losses by 20% after preemptively blocking suspicious orders

7. Implementing Post-Delivery Feedback Loops

Collecting feedback after delivery can help identify the root causes of RTOs and returns, allowing brands to address specific issues proactively.

Steps to Implement:

• Automated Feedback Requests: Sending surveys or feedback forms post-delivery.
• Analysing Feedback Data: Identifying common themes or issues leading to returns or RTOs.
• Actionable Insights: Implementing changes based on feedback to improve customer satisfaction and reduce future RTOs.

Benefits:

• Continuous Improvement: Regular feedback helps in refining processes and policies.
• Customer Engagement: Engaging customers post-purchase builds loyalty and trust.
• Problem Resolution: Addressing specific issues can prevent repeat RTOs from the same causes.

Example:

A D2C kitchenware brand introduced post-delivery feedback and discovered that 15% of RTOs were due to delivery delays. By optimising their logistics partners and improving delivery timelines, they reduced RTO rates by 10%.

8. Offering Virtual Try-Ons and Enhanced Visualisation Tools

For product categories like fashion and cosmetics, virtual try-ons and enhanced visualisation tools can reduce uncertainty and the likelihood of returns, indirectly minimising COD-related risks.

Technological Implementations:

• Augmented Reality (AR) Try-Ons: Allowing customers to virtually try products before purchasing.
• 360-Degree Product Views: Providing comprehensive visual representations of products.
• Interactive Size Guides: Helping customers select the right size with precision.

Effectiveness:

A D2C fashion brand introduced AR try-ons and saw a 15% reduction in size-related returns. With fewer returns, the associated COD RTOs and logistics costs also decreased.

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Navigating Uncharted Territories:

We consider the above as the basic Safety Manual for the eCommerce Romantics out there.

Most brands consider removing COD entirely when they witness huge losses - and we know it is uncharted territory for most to explore options in the area..

But as we said before, the goal is to minimise COD losses, not to eradicate the COD mode of payment.

This way, the Indian audience is satisfied, while you (the brands) are safe too.

To Wrap Up: COD (Cash-on-delivery) is a Risky Affair, So Make It Work Smart

COD continues to be a double-edged sword in Indian e-commerce. On one hand, it opens doors to new customers who are cash-reliant. On the other hand, it bleeds your business dry through high RTO rates, fraud, and abusers - COD is a necessary evil!

The trick lies in knowing where to draw the line—whether that’s through data-driven decision-making like disabling COD for high-risk customers, automating verifications, or simply avoiding certain zones. In the end, COD can be a partner or a deal-breaker, depending on how you manage the risks.

But, Cash-on-Delivery remains a powerful tool in attracting first-time and cash-dependent buyers, but D2C brands must acknowledge the operational nightmare it brings. With the right data-driven strategies—such as smart COD disabling, customer intent verification, and regional risk assessment—brands can cut down on RTO losses and fraud, while moving towards a more balanced payment ecosystem.

By managing COD smartly, you won’t just save your profit margins—you’ll save your sanity too.

So, next time you’re about to ‘get in bed with COD,’ make sure you’ve got the right tools to protect yourself—because no one likes waking up with buyer’s remorse (or worse, no buyer at all).

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