6 facts that you should know about cash-on-delivery in Indonesia

Credit: Kirim

Recently Tech in Asia wrote about how Indonesian startups still find ways to overcome the payment infrastructure challenges in the country. One of the most popular ways for online shops to cater to users without credit cards or bank accounts is to offer cash-on-delivery (COD). Users will log on to their favorite e-commerce site, add an item or two to their shopping cart, enter in their address, and then pay for the item in cash once it arrives at their doorstep.

Naturally, some consumers will take advantage of COD at the expense of the company. Sometimes there are customers who “cancel” their purchasing decision after the product is delivered and they take a look at it. In other cases, customers will order two to three units of the same product but in different sizes or colors, then choose the one they want when they all arrive via courier.

Still, many well-known stores like Zalora and Lazada continue to offer this rudimentary but effective payment option. To clarify some assumptions about COD, Tech in Asia spoke with Zalora Indonesia co-founder Hadi Wenas, who laid out six basic facts for us.

1. Indonesians love COD

Wenas tells us that bank transfer is the most popular payment method on Zalora Indonesia, accounting for half of all the site’s transactions. COD, meanwhile, makes up 40 percent of all the site’s transactions. The remaining 10 percent of transactions are conducted by credit card. At Zalora’s sister company Lazada Indonesia, COD is the most popular payment method.

In April this year, Zalora Indonesia recorded 200,000 daily visitors while Lazada Indonesia had 250,000 visitors every day. COD plays a good part in turning all those visitors into customers.

2. Yes, returns upon delivery happen

An obvious concern for businesses wary of COD would be the ease with which a customer can make “returns.” Of course, until the money leaves the hands of the consumer, no purchase has officially been made, no matter how many items he or she may have ordered. Buyers can turn into browsers at any moment, and the company still has to pay for time and labor lost.

Do these customers exist? Wenas says yes; but there’s not a lot of them. He says that item returns happen in less than five percent of all deliveries. As for customers returning an item in order to exchange it, that happens in under five percent of cases too. About half of all those returns happen immediately upon delivery (called “return at door”).

3. Few customers make bad returns

When is it okay to return items to online shops? For Wenas, it should fulfill these three conditions: whether the item is the same item the customers ordered, whether the item is still new (not yet used, still clean and complete with brand tag and box), and whether the item is undamaged.

Despite having the conditions above explained on the website, there are still some customers who try to outsmart the system. Some customers return dirty shoes after they’ve been used, some even try to scam Zalora Indonesia by ordering genuine Crocs but return fake ones they’ve bought elsewhere. Bizarrely, some customers have ordered shoes but attempted to return sandals instead. But all of the above don’t happen often.

Wenas’ system to battle that is to be strict about his returns policy. If customers try to cheat the system, they do not get a refund.

It’s true that COD reduces the “cost” of returns for consumers; but so long as they are happy with the product and service, then they won’t need to return anything. Of course Zalora doesn’t accept item returns for certain product categories, like perfume and underwear.

4. COD is not the main reason for returns

Wenas explains that while COD eases the return process, it’s not the main driver behind it. The biggest reason for returns is the lack of information regarding the product. This happens when the website doesn’t show detailed enough product descriptions and measurements, and the item doesn’t match the customers’ expectations.

To mitigate this risk, Zalora Indonesia makes sure to take high-quality photos of its products while providing as much information as possible, like exact measurements. The Zalora warehouse has its own measuring tables for shoes and shirts, so they can put in the most precise measurements possible.

5. More mature markets equal more returns

6. Indonesia’s logistics companies are more open to COD