Will cash on delivery return post Covid-19?

Will cash on delivery return post Covid-19?
Image courtesy of Aramex

By Faris Fallouh, Senior Global Express Services at Aramex

During this pandemic, consumers globally and in the Middle East and North Africa (Mena) region flocked to online channels to buy all sort of essential and discretionary goods. The effect of different patterns of areas and cities in lockdown, restrictions on movement, feeling unsafe to go out resulted in an unprecedented surge in e-commerce volumes.

Offering consumers the ability to pay cash on delivery (COD) has always been a necessary formula in the Mena region to grow the e-commerce sector due to the low credit card penetration rates and lack of trust in paying online.

For those in the industry, we have always thought that the appeal of COD would eventually weaken with the maturing of the ecosystem as a whole and with greater involvement of regulatory consumer protection agencies which can aid in creating a trusted environment for consumers. What no one could have predicted was the sheer impact that the coronavirus pandemic would have on daily life, which ended up accelerating consumer spending behaviour to online and ultimately pay online versus using COD.

Let’s take a closer look at two key markets in the Mena region where e-commerce is extremely vibrant and mature and the impact that the coronavirus had on shopping habits

Saudi Arabia

Saudi Arabia is the biggest e-commerce market in the region for both cross border and domestic markets. Traditionally, the country has been the market with the highest COD service demand across its major and smaller cities.

During the pandemic, the Communications and Information Technology Commission (CITC), the postal regulator, issued very strict guidelines that prevented COD in order to control the spread of Covid19, which is believed to survive on cash.

This created a very different dynamic for online retailers within Saudi Arabia and abroad. Some e-commerce sites began to only offer online payment options and removed COD, while courier operators adapted to the regulation by offering electronic point of sale devices to allow consumers to pay via credit or debit cards at home. 

Alternative payment methods were also quickly introduced, Aramex for example established an online payment portal to offer payment before delivery to serve both the consumer and the courier company itself. This created a very interesting model of paying for cost of goods after shipping but before delivery.

As a result of these new measures, the percentage of COD orders saw a substantial drop compared to the pre-Covid period. In May, COD transactions dropped by 40-50 per cent when compared to previous months before the lockdown.

CITC continues to play a significant role in making the e-commerce ecosystem a more trustworthy environment by forcing specific rules and regulations that protect consumer rights with regards to receiving goods on time, the right to return items and receive a full refund. They also continuously work to weed out non-compliant e-commerce operators.

United Arab Emirates

Contrary to Saudi Arabia, the UAE enjoyed the highest adoption of online payment methods within the Mena region with two thirds of all e-commerce orders paid for online. 

What has been noticed is the same regional e-commerce players who capitalised on the Saudi Arabia CITC guidelines to reduce dealings with cash adopted similar strategies to reduce offering COD and make it less appealing.

As a result, there has been a noticeable reduction in COD transactions but not to the same extent as we have seen in KSA. We saw a decrease of 15-20 per cent decrease in COD orders adoption. This is quite natural given that UAE consumers were more likely to pay online.

Effect on the courier companies

It goes without saying that offering cash on delivery puts greater strain and requires more resources from both the back-end operations and the last mile couriers delivering and collecting the cost of goods.

The reduction in the percentage of COD transactions has a very positive effect on the productivity of the courier companies and enables them to deliver more packages using the same resources.

As consumers were not as mobile as before, the chance for the courier to get hold of the consignees and deliver packages increased during the pandemic. The average ratio of attempted deliveries to successful ones was reduced by 10 per cent.

The restrictions on the ground also had a very positive effect on the traffic situation where roads became less congested, enabling the delivery vehicles to navigate faster.

Unfortunately, the positive effects overall were offset by the reduction of the working hours allowed for courier companies as a result of the same curfews and restrictions.

Lasting Change?

Looking at the significant reduction in COD in Saudi Arabia, it is obvious that consumers will respond to external factors like CITC guidelines to reduce handling cash and pay online. Online retailers have strongly pushed customers to pay online, but only a few online retailers have adopted such a strategy and overall, retailers who are fiercely competing against each other found it difficult to lose market share.

Offering COD during the pandemic was really a two-edged sword for both sides of the equation.

The consumer who used to shop using COD has been experiencing extended and longer delivery times by both the retailers with their own fleet and courier companies who had to deal with multiple factors from lockdown to shortened working hours and to a surge of business. It is quite natural in such circumstances to feel more comfortable using COD and pay only when goods are delivered or shipped at the very least.

Naturally many e-commerce companies faced operational pressure to handle the surge which resulted in longer processing times and longer delivery times, which had a direct negative impact with the percentage of successfully delivered COD orders.

I believe the shift toward online payment and the decrease in adopting COD will have a sticky effect as more consumers change their behavior. However, as lockdown restrictions are lifted and life returns back to normalcy, then some customers would be tempted to revert back to using COD as they now more choice in the number of e-commerce sites and retailers will be forced to offer a full suite of payment options to stay relevant.

The positive increase in the adoption of online payment will translate to a much better streamlined delivery experience at a lower cost for all parties involved from the online retailers to courier companies and the consumers themselves.

Data in the coming few months will certainly validate our assumptions and hypothesis about consumer behaviour, market dynamics and the way the e-commerce ecosystem develops.

Thank you

Please check your email to confirm your subscription.