A delightful guide; The true cost of Cash on Delivery
A few times a week, I find myself sitting in a DIFC food court for a late lunch, while watching the operations of the restaurants. The staff moves diligently and runs through their daily chores like an orchestra.
Every once in a while, I notice a pair of security staff stroll in with heavy security boxes to collect the day’s take from the cashier’s machines. They spend twenty minutes or so counting, talking and taking notes.
It’s at this point that I usually think to myself, “I wonder how much this costs the restaurant every week”. So, one day, I grabbed the napkin next to me and decided to tally it up.
Cash on delivery (COD) is the biggest challenge for businesses in MENA, yet 75% of the economy is still cash based. Why is that? For starters, most businesses believe that cash is convenient. And most believe that — unlike online payment acceptance — cash is free. My experience above started to qualitatively dispel that myth. And running the numbers shows us exactly why cash is neither free nor convenient.
We recently ran an in-depth analysis across every market in the MENA region, to understand the true cost of COD.
Our methodology assumed that deliveries are made using scooters or motorcycles, and that businesses own these vehicles. In reality, businesses contract logistics firms for deliveries, to avoid fleet CapEx costs. Which means that they pay markup on top of the true cost of COD. The assumptions below are averages in MENA and are also quite conservative so we don’t overestimate the problem.
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Plugging these assumptions into our model gives us the following:
Going back to my lunch-time observations above, the extended costs of COD still don’t end there. Once cash is collected, it must then be deposited, logged and tracked; all these activities require hiring dedicated personnel.
That said, and based purely on the table above, we can already see that the real cost of cash-on-delivery far exceeds the costs of collecting payments using modern, reliable and efficient means such as payment gateways or payment links.
It would be wise for every business owner or manager to look into the true costs of their existing payment collection operations, and make the necessary adjustments to improve the business’ efficiency.
If you’d like to get more information on our study or brainstorm ways to reduce the cost of collecting payments for your business, please get in touch with me.
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1 年Ease of getting things delivered at home is in itself a selling proposition so the D has to be there irrespective of C and O ??. Its better to bake this cost into pricing.
Great topic to bring up Imad G.. I think there are various elements affecting this topic. As someone correctly said, it is a trust issue for some customers, while for the retailers, whether they bank AED 100 for the day or AED 100k, they still get the cash collector showing up every day for the pickup. The cost to the retailer is probably the same as they pay Transguard or any company that takes care of this. Unless cash is gone, don't think retailers would completely walk away from this, regardless of the cost. Having said that, unlike in the west, cash is linked to the culture in the region from what I see. What has caused this could be prestige, trust, seeing is believing (holding something tangible), traceability or lack of it, or many other factors which I am not privy to. And until this habit changes in the region, it will be a while until we see a breakthrough, although it could be soon.
Director, Institutional Cash and Trade
2 年Spot on! And on top of the potential cost saving, a 2021 MIT study shows that the use of credit cards (and I would argue by extension electronic payments as a whole) increases spending. So it’s a win on costs and a win on revenues.
Retired at Ex ADIB And Citi
2 年Seems like a marketing article not a true observation what the customers end clients want. Contrary to trends I believe as Economies tightens, we will see a movement even if temporary back to cash. In the end the customers will determine trends. Not intermediaries
Performance Marketing Manager at e& Life, Starz On
2 年Imad G. Interesting analysis, however one might argue that the cost of COD is more so the cost of logistics rather than the cost of a payment method. Even if COD is replaced by a digital payment method, the above illustrated costs would remain more or less the same as businesses would still need to pay to get the deliveries done. Order cancellations in case of COD can sure rack up those costs which can surely be avoided with digital payment solutions, totally agree with you that cash is neither free nor convenient.