The U.S. eCommerce business is the most advanced in the world.  Especially when it comes to payment systems.  In the early days of eCommerce, it wasn’t uncommon for online sellers to accept COD (Cash-on-Delivery- yes- real currency).  Though COD was very inefficient and impractical, many people did not think their credit cards were secure online.  It was the need for secure payments for online purchases that gave rise to PayPal and other secure electronic payment methods.  COD quickly became unnecessary and obsolete.  The U.S. consumer saw the value in purchasing online and became accustomed to paying electronically before their purchase shipped.  However, it’s not that way everywhere. 

Saudi Arabia & United Arab Emirates

Saudi Arabia and UAE are great examples of how payments are done differently than in the United States.  Both countries have thriving economies, well-educated populations, and open economies.  Both countries have a high percentage of people living in urban areas, with access to high-speed Internet, and easy delivery.  In other words, both countries should have high adaptation rates to eCommerce.  They should be close to being equal to the U.S. market in terms of adaptation to eCommerce purchasing.  But they are not.  One reason their eCommerce system lags behind the U.S. in terms of the percentage of eCommerce purchases is the high percentage of COD payment-type. 

The reasons for the difference are mostly cultural.  Whereas the U.S. consumer has accepted electronic payment as safe, some of the residents of the middle east are still skeptical.  Additionally, the penetration rate of credit cards there is lower than in the U.S.  Therefore, if an eCommerce site wants to sell into that market, they must offer a COD option. 

The Disadvantages of COD

COD is very inefficient for many reasons.  It holds back the true sales growth potential due to these inefficiencies.  They are:

  1. High rate of non-delivery and returns.  Many people are not home to receive the package, accept delivery, and pay.
  2. Slower per-delivery time at the door.  This causes fewer deliveries per day.
  3. Longer wait time for delivery, in terms of days. Because they can’t deliver as many packages per day, the delivery backlog is high.
  4. High return processing, due to undelivered packages. 
  5. It is virtually impossible for a seller to ship from outside the country they are selling into.

The Effects of the Covid-19 Pandemic on COD

Because the Covid-19 pandemic has forced people to have less exposure to crowds, many people have shifted their purchasing behaviors online.  Shopping online, and having the products delivered to the door is the best way to avoid crowds and stay safe.  This trend accelerated very quickly as the virus’ spread got worse.  This, in turn, made online shopping less of a luxury and more of a necessity.  This necessity allowed the eCommerce sites to demand that their customers move away from COD and to electronic, in-advance payment.  Currency became unsanitary and could potentially spread the virus.

Saudi Arabia

The government agency Communications and Information Technology Commission (CITC) in Saudi Arabia prohibited the use of actual cash for transactions, to reduce the spread of the virus.  Some courier operators adapted by offering an electronic point of sale devices to allow consumers to pay via credit or debit cards at home. Though this is safer than actual cash, it still has all of the disadvantages of payment at the door.  

Some e-commerce sites began to only offer online payment options. Alternative payment methods were also quickly introduced, Aramex for example established an online payment portal to offer payment before delivery. As a result of these new measures, the percentage of COD orders dropped substantially compared to the pre-COVID, for example, in May, COD transactions dropped by 40-50 percent when compared to previous months before the lockdown.

The use of online payments became acceptable to customers since they needed the goods quickly. 

United Arab Emirates

In the UAE, the consumer already had a high propensity to use electronic, payment-in-advance methods.  In fact, two-thirds of all payments were electronic transactions.  They still had to transition away from COD because of all of the disadvantages it possesses.  The UAE adopted similar guidelines and strategies as Saudi Arabia.  As a result, they saw a 15% – 20% decrease in payment-at-the-door. 

Delivery Productivity

The move to online payment at the time of purchase greatly reduced the inefficiencies inherent payment-at-the-door.  This had a positive influence on the deliveries-per-day, which helped eCommerce better meet the needs of the market. 

What’s Next?

As we saw in the U.S. and other developed eCommerce markets, once the buyer sees how safe and easy electronic payments are, they are quick to accept that method and continue.  No one knows if the demand for COD will return in these two markets, but it is doubtful.  The eCommerce sellers have proved it is not necessary. 

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.  It will also open up selling to suppliers from outside Saudi Arabia and the UAE.  And that will increase competition, expand the product offerings, and help grow eCommerce in those countries. 

Perry Goldstein
Perry Goldstein

Perry Goldstein is an electronics industry veteran, with over 40 years of experience in manufacturer sales and marketing in both the consumer electronics and Pro A/V spaces. He has managed sales in both B2B and B2C markets.