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Cash on Delivery (COD) is the most commonly used method of payment amongst e-commerce retailers in India, according to Nielsen’s Global Connected Commerce Survey.

In fact, 83% of consumers in India said they'd used COD for an online purchase “within the past six months” when surveyed in Q4 2015. Consumers in India are hesitant to use credit cards online due to fraud risks. Credit cards are also less prevalent in India than in the US.

Flipkart was the first of the three major e-commerce players in India (Flipkart, Snapdeal, and Amazon) to push COD. COD represented 80% of overall orders for Flipkart in 2015, while 72% of orders placed from major cities across India were COD and 90% of orders placed from smaller cities were transacted through COD, according to Your Story.

Not long after Flipkart, competitors Amazon and Snapdeal also began offering the popular fulfillment method. However, online retailers are facing increased logistics costs due to the high number of COD orders.

For COD to work, the consumer needs to be physically available to receive the goods in order to provide payment. Often times the consumer is not available, which means that multiple delivery attempts are made for one order. The average number of delivery attempts per order is 1.24, notes Your Story. This translates into an extra 24% of labor costs in last-mile delivery for the seller.

Furthermore, e-commerce retailers with high COD orders face higher cancellation rates due to the consumer refusing the order. For example, the consumer may not be satisfied with their purchase upon seeing it and refuse payment. In such a case, the seller is responsible for all costs associated with the return of the item, increasing logistics costs.

The e-commerce industry in India is growing rapidly. E-commerce sales in India totaled an estimated $7.7 billion in 2015, a 15% increase from $5.3 billion in 2014, according to data from eMarketer. Moreover, 65% of consumers in India use mobile devices to connect to the internet.

All three major e-commerce retailers in India have a mobile wallet, thus the possibility to convert COD consumers to online payment consumers is huge. Snapdeal utilizes FreeCharge, while Amazon and Flipkart offer their own mobile wallet solutions. Online retailers could push their mobile wallets within their online marketplaces to increase online payments and mitigate the aforementioned risks associated with COD.

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