Is COD still the only way for ecommerce?

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As the ecommerce market in MENA continues to grow by more than 40 percent annually, so does the urge to challenge the dominance of cash on delivery (COD) as the main payment method.

While the majority of entrepreneurs remain convinced of the importance of having offline payment for their businesses, others are challenging the status quo by going strictly online.

Leading this list is electronics ecommerce platform JadoPado. While founder Omar Kassim and his team were revamping their business model in 2014, they decided to downsize their number of delivery vehicles to cut costs, Kassim told Wamda.

"Since we'd been working with Fedex for just under a year (for global shipping) we thought: 'let's bring in Fedex to handle delivery sources in the UAE',” he said. “This was an opportune time to also say: 'let's kill COD and see what happens.' "

Knowing that COD comprised 40 percent of total payment transactions at JadoPado, Kassim was well aware he was taking a risk. However, he was encouraged by the observation that many customers in KSA had “up to three and five credit cards but were still, for whatever reason, opting not to use them.” Why did he think this was the case? “A lot of those times it felt like, it was simply because the option was available for them not to."

Omar Kassim of Jadopado
Omar Kassim of Jadopado. (Image via Impacthub.ae)

A year later and sales have grown "pretty well", said Kassim enthusiastically. "We were able to make up for [eliminating] COD."

One factor that could have served Kassim was the fact that JadoPado mainly features electronics items which, as many reports have mentioned, are among the most common type of items purchased online in the region. Anxious to avoid the mistakes of other electronics retailers whose ventures were “disasters in the making”, Kassim worked hard to target his existing COD-paying customers in KSA.

"We could say that we had a significant basis of customers in KSA who were [ordering] and we were shipping the products to them, and so when COD was no longer available, they didn't mind using online payment."

Can all ecommerce businesses follow JadoPado's footsteps?

“I think the challenge here is that merchants who are serious about building a good customer experience in the region can literally be counted on one hand,” said Kassim. Believing that anyone can apply the rule of no COD, his opinion is that merchants offering “sub-par” experiences are perpetuating the demand for COD.

Paypal’s MENA Business development and sales manager, Francis Barel, echoes Kassim’s opinion. “If merchants believe that they need COD to sell their services then their services are not unique enough compared to the competition to attract customers without COD."

“COD is not a fatality,” he said. “It's just a 'because everyone has always done it' solution that doesn't create a sustainable ecosystem."

The idea, however, is out of the question to other ecommerce platforms who rely hugely on COD, such as Namshi.

"COD is one of our chief strengths, and we're very comfortable with it," said Iqra Shukr, Namshi's VP of customer experience operations. One of the largest ecommerce websites of the region, Namshi has more than 550 brands and retailers on its platform- and more than 50 percent of its transactions come from COD.

"In order to survive in the market - at least for now - you need to have COD," Shukr told Wamda. For them the  payment method was essential for the success of Namshi, and going solely for online payment seems, at the moment, a great risk. "Epayments are a lot more prevalent in the UAE than they are in Saudi, and because our major market is in Saudi, we still do not have a huge segment of customers that opt for epayment."

Namshi's epayment distribution are echoed by that of giant ecommerce platform Souq.com, where only 28 percent of the site's total transactions are done online.

Other success stories

As tricky as online payment may seem at the moment, Wamda had previously spoken to entrepreneurs who, like Kassim, have managed to grow a customer segment that is based solely on online payment.

The Yafi brothers of Y Ventures
The Yafi brothers of Lebanon's Y Ventures. (Image via Executive)

Building on their previous success abroad, entrepreneur brothers Ghaith and Abdallah Yafi had had their mind set on founding an online payment site without COD. “We went with the keying proposition that we were after this niche, credit-card holding segment of the population who had a spending capacity,” Abdallah told Wamda in June. The brothers told Wamda that the heart of their success came from targeting "A-list merchants and A-list spenders", or by matching elite merchants with elite customers willing to move to online payment.

Other online success stories include UAE-based e-gift card platform YouGotaGift.com and the recently launched Kuwaiti startup Dizly, both of which have chosen to eliminate COD completely. Since its launch in May, Dizly has had over 12,000 total users "with 30 to 40 percent return users", Dizly cofounder Nizar Wannous told Wamda. “It was difficult to convince people to use the app, and we relied on friends and family to market the message, through word of mouth."

But as each of these entrepreneurs have pointed out, more than one factor comes into play when weighing out the pros and cons of making the decisive online shift. 

[Feature image via Subiz.com]

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