For a long time, cash has been the most preferred method of payment for ecommerce transactions in the Philippines. In these pandemic-driven times, because of fear of transmitting the virus through physical cash, people are ideally forced to use online payment options for their purchases. The reality is that, however, cash on delivery (or more popularly, COD) remains king among other options that are growing in popularity (such as virtual wallets and bank funds transfer).
BusinessWorld reported, in August 2020 last year, that COD payment comprised 67% of all ecommerce transactions, followed far behind by online options such as Gcash and Paypal. For further context, COD has the highest acceptance rate among customers in the Southeast Asian region, and particularly, in the Philippines, payment on cash basis is very much part of the Filipino culture.
The Challenges of COD payment
While COD obviously offers many merchants the opportunity to align with market preference, they may also find setting up this payment system a risky and an inconvenient move. Under COD arrangements, customers can refuse deliveries of items ordered, and processing returns for these items can be very costly from the merchant’s end. When refusals happen, merchants still have to pay for both shipping and returning the product to their facilities, even without making any sale.
Another possible challenge that comes with offering COD is the longer cash conversion cycle process that it takes for the payment to be transferred from the courier servicing the order back to the business. Normally, the process is for the courier to first consolidate all the payments collected up to a certain period of time, after which the collected amount is transferred to the merchant’s bank account.
The couriers who are physically carrying cash are also exposed to risks of theft. A single instance of robbery can lead to significant losses both for the merchant and the courier. To this regard, many couriers have placed cash limits to how much a customer can pay for an item in cash. Hence, expensive items usually cannot be purchased via COD by customers, and this is where other online payment options play a huge role for the merchant.
Merchants who currently offer COD also have to bear with high surchages deducted by couriers to payments collected. These surcharges can significantly reduce the profits of the merchant and disincentivize the smaller businesses from continuing the cash payment method. These surcharges are normally placed in order to insure the payments or to cover for fees that are part of processing the payments. To this end, therefore, other online payment options work to the advantage of many merchants, since it skips both the cash conversion process and the fees that come with it.
Yet Cash is Still King
Despite these obvious inconveniences for any merchant, the sheer volume of transactions made via COD makes it very difficult for any e-commerce business to simply overlook this payment option. If made available, it can help, especially the new merchants, to establish loyalty and reputation in the market. More importantly, it relaxes the customer from the fear of bearing losses from failed expectations about the product. And to this end, some merchants even attach other customer-friendly features such as money-back guarantee options, in order to address key issues that customers usually have with online payments and which make COD as a more popular payment option.
One of these issues is the lack of trust and confidence that many customers have towards ecommerce force them to resort to on the spot payment offered by COD. Filipinos have been so used to paying cash in brick-and-mortar retail stores in order to receive the product outright. This is understandable, since paying only after they receive the product offers them the flexibility to refuse orders that have problems such as variant mismatch or physical damages. COD also protects the customer from fraudulent transactions from some merchants who lack the credibility as a business.
Another issue, and which is perhaps more of a structural one, is that many Filipinos are still unbanked (around 50 million according to ADB) and lacked credit cards to use for online purchases. The government of the Philippines has made a considerable initiatives to allow investments that increase financial inclusiveness in the Philippines. Additionally, the growth of many virtual wallet options such as Gcash and Paymaya are slowly enabling the behavioral shift, yet COD continues to beat these other online options presently, and perhaps in the foreseeable future.
With the country fast-tracking its adoption of other online payments because of the uncertainties in the pandemic, merchants, both current and prospective, have to work towards building a variety of payment options in order to engage all sectors of the Philippine market. Special consideration has to be given, however, with setting up a cash on delivery option, obviously because it is still the most popular payment method among the customers. Acknowledging all the additional burdens that merchants have to carry in offering COD, merchants have to device solutions to address them in order to still profitably gain from it.