By Khilan Haria
Rewind back to the last decade, when you would have probably purchased your first book using an e-commerce site. It might have been a thrilling experience, it was at least for me. The thought of receiving a product from the comfort of my home was enthralling. However, on the flip side, there was a lot of fear as well when it came to payments. Most of us preferred opting for Cash on Delivery, insurance of sorts if the products never arrived. Fast forward to 2022, the Indian e-commerce market currently stands at $84bn, and cash on delivery, now, accounts for a very small percentage of the e-commerce transactions.
The Indian startup story has seen one revolution after another. While the 2010 decade was the e-commerce era, the current decade is the fintech era. However, for the first time in the Indian startup history, two consecutive eras have complemented each other so well to enable the growth of both sectors.
The Fintech-Commerce Duo
When CoD was launched in India in 2010, digital payments usage was less than 1% of India’s money movement, making CoD a considerable breakthrough for e-commerce companies. However, just relying on Cash on Delivery would have proved to be a major hindrance to the growth of the e-commerce industry in India, largely because of the crunch that it would have caused on the operating capital cycle of the seller.
Also Read: How apps can unlock the potential of e-commerce in mobile-first economies
When a buyer orders online through CoD, the cash is collected by the delivery executive, who then passes it on to the delivery manager. At this stage, the cash is reconciled and sent to a central hub. Once money accumulates here, it is deposited into the bank account of the third-party logistics (3PL) provider who then transfers it to the online retailer. The entire process takes upward of 2 weeks and complications are further added if the order is a Return to Origin (RTO) order.
Apart from facing a capital crunch, the overall cost of cash orders (including RTO) was upwards of 3% for most online retailers, which is greater than the payment gateway fees charged for digital payments.
Hence, enabling the e-commerce growth journey was really a three-fold affair. Firstly, enable a shift from CoD to online payments. Secondly, solve the operational capital cycle crunch. Lastly, for the remaining CoD orders, make them more predictable and reduce cost inefficiencies in the process. This is where the fintech industry stepped in.
The Trifekta for Ecommerce Growth
The main reason, apart from the trust with online platforms, why consumers opted for CoD was because of the accessibility & convenience associated with Cash. However, if one were to make digital payments more convenient and safer than CoD, consumers would naturally shift to digital payments. The biggest solution for both accessibility & convenience has been our homegrown
real-time payments network UPI. UPI was mobile-first and made payments simple & accessible to the masses by opening up third-party apps to build best-in-class UX on top of this revolutionary payments infrastructure. Additionally, by offering multiple payment methods, fintech enabled e-commerce businesses to take the first step toward shifting consumers to online payments. This coupled with rewards and discounts associated with digital payments motivated consumers to make the shift. Moreover, fintech enabled e-commerce sites to take advantage of different payment methods like subscriptions, which helped them expand their revenue potential and bring predictability to their cash flows. With regulations like tokenization and AFA, digital payments are made safer to increase consumer confidence in digital payments infrastructure, accelerating the shift further.
Also Read: UPI Payment Charges: Free UPI transactions to stay, Modi Govt not considering any charges
The challenge of operational capital crunch was solved by fintech by providing eCommerce sellers with easy working capital and cash advances. Through the power of data analytics, fintech companies were able to analyze the cash flows of the sellers and assess the risk of the working capital and immediately disburse the same. This boosted the growth of e-commerce sellers as they received the amount they needed to grow their business at the right time.
Despite all of this, there are still some orders which are CoD. Loose ends that need to be tied up. Thankfully with the help of data analytics, AI, and ML, the remaining CoD orders could be made safer for sellers. Using technology, fintech can now help weed out risky orders and undeliverable addresses, while at the same time enabling sellers to give out prepay CoD links to their customers to reduce the risks. Through our analytics, we have seen that by taking such measures, businesses can save up to 30% of their operating costs.
The Bright Future
In the last year, according to our data, e-commerce was the 5th largest contributor to all the transactions done on the Razorpay platform, growing by 84.37% and the future only looks brighter. With online transactions becoming safer and faster, e-commerce will see a renewed vigor in growth.
(The author is SVP and Head of Payments, Products, Razorpay. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)
