Cash is not king [Opinion]

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The reliance on COD payments is hurting MENA's ecommerce sector. (Image via sharktankblog.com)

This is a crosspost with Mo Ali Yusuf’s LinkedIn blog.

We, the internet entrepreneurs and intrapreneurs of the region, have created a problem out of a need for a short-term solution.

That problem is cash-on-delivery (COD), a popular payment method used for ecommerce purchases.

What started as a method to accept payments online for a largely under-banked, under-mature, and under-trusting market, COD has become the most preferred payment method for ecommerce transactions in the MENA region, when the delivery of a physical good or service is involved.

Because of the higher costs and risks associated with this payment method, COD increasingly harms the evolution of our ecommerce ecosystem. Let’s debunk a few common misconceptions about the use of COD in Middle East ecommerce.

Myth 1: COD is everywhere

There are a lot of things in abundance in the region (oil, sunshine, etc.), but cash as a form of ecommerce payment is not one of them.

Cash is used primarily for payment of physical goods or services, with payment in cash directly to the merchant or to a third party fulfillment company. Interviews with executives of retail, fashion and service brands that accept COD reveal that cash for them makes up 40-80 percent of all online payments.

However, take a wider lens and you’ll realize the majority of ecommerce resides with digitally delivered goods (e.g. government payments, travel, coupons), where credit/debit, and alternative digital payments are widely accepted and used.

Myth 2: COD is cheaper for merchants

COD gives the consumer the ability to evaluate a purchase decision up until delivery.

In reality, this extends the lifespan of the decision funnel, and allows the consumer to abandon purchase right up until physical delivery. As a result, merchants still incur cost of fulfillment (inventory management, shipping, customs), and still may have a purchase returned from a confirmed customer.

Feedback has been that Saudi Arabia carries the highest ecommerce purchase return rate, at almost 60 percent for some major retail brands, resulting in reduced overall margins and high operating costs.

Myth 3: COD is needed because nobody has credit or debit cards

According to the World Bank, MENA has a rapidly increasing banked rate.

For example, the UAE stands at 84 percent banked, while Saudi Arabia stands at 69 percent banked customers. COD was initially by the pioneers of ecommerce retail and fulfillment companies, but have remained largely unchanged over the last 5-10 years.

However, innovative ecommerce players are intelligently phasing out COD for certain markets, or contextually for customers who have tokenized cards-on-file.

Myth 4:  Consumers don’t trust ecommerce

We’re seeing double digit growth in nearly all MENA countries - sometimes as high as 40 percent year-on-year.

Proliferation of apps, use of iTunes and online travel is rampant. Social media growth is the highest in the region across several platforms. If you can post your personal life on the web, do we really think consumers still don’t trust putting a bank card into a secure form, with 256-bit encryption and protected by bank enabled 3D secure? 

Myth 5: It’s a merchant problem

It’s an everybody problem.

The entire ecosystem suffers including merchants, banks, gateways, consumers, service providers, and government. COD hurts the bottom line, creates unnecessary cost barriers to entry, reduces transparency, and eats our local, regional and global progress.

Consumer behavior is easy to shift. Digital payment is seamless with the right consumer experience.

Running to find change to pay a courier for pizza delivery or to the ATM to pay for my latest designer shoes is very unsticky! Cash is a pain in the butt for everyone. Lose it.

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