Cash on Delivery – Another casualty of the pandemic?
Fast forward to today and this is reflected in usage of COD which has come down to ~20-30% of online shopping orders in UAE. One possible reason is the expected stickiness of ~60%.
1. Market Nascency
Historically, cash-on-delivery (COD) has been big driver of e-tailing as wary consumers built confidence with e-tailers, while unbanked/ partially banked population got a shot at buying online products. So, even though credit/debit card usage was high, preference for COD reigned strong. In 2017, >60% of consumers preferred COD methods. Even so, Amazon, the largest e-commerce player in the region at the time provided no COD option.
2. Shifts in Preferences
A year ago, when the pandemic hit, the preference for no contact payment and thus digital payments grew. We estimate that the % of consumers who increased or tried digital payments for the first time was 70-80% in UAE and KSA. Fast forward to today and this is reflected in usage of COD which has come down to ~20-30% of online shopping orders in UAE. One possible reason is the expected stickiness of ~60%.
3. Other Enablers
While stickiness definitely played a role, there were other enablers as well. One reason was the growth of eGrocery. This category saw a +3x growth but with low COD preference (about 30% only) – pre-paid orders were more prevalent. Thus, increasing trust and openness to digital payments in general as more and more people used online methods for essentials.
4. BNPL – The Game Changer
Consumers growing comfort with digital payments has opened the door for new types of payment methods. One of them is Buy-Now-Pay-Later (BNPL) which allows consumers to make purchases online and pay for them in instalments without the added fees that the platforms impose on their customers. This concept already has takers with 50% of consumers aware of BNPL and ~40% of them having used this method for shopping in the past 6 months – and we expect this penetration to increase. BNPL is clearly the talk of the town in fintech with some 10 well-funded BNPL startups coming up in MENA.