I had a chat with an old friend about the state of e-commerce in India and I learned something new.

Cash-on-delivery (COD) is still a widely used option in e-commerce platforms. Customers still choose cash-on-delivery because they feel more secure to know that they have to only pay after the product is delivered. This is because there have been sellers/logistics companies who do not deliver.

Deliveries can fail because of an absentee recipient, or because of delayed delivery (customer does not accept it when it is late and doesn’t pay the COD), or because the logistics companies are too busy so they claim the delivery failed without trying to deliver.

Failed deliveries have to pay double the delivery charge for the return trip. Cash-on-delivery option leads to extra charges (~50-80 INR) which the logistics companies issue for having to handle the cash. This amount is not charged on failed delivery.

Customers love to not pay for shipping, and even if they have to they choose shipping the cheapest shipping options with the worst service.

Amazon offers a 30-day-return policy, and there are cases of customers returning fake iPhones in place of real iPhones and selling the real iPhones in other markets. Customers often buy the same t-shirt many times and return the worn ones in place of the newly ordered ones as returned items. Amazon handles these cases by both paying the seller, and also refund the buyer, and by suffering the loss themselves. My friend claims this is entire reason behind Amazon’s annual 50+ million USD loss in India.

Amazon offers just enough incentives to sellers minus the sellers’ brand recognition. Amazon Prime is creating brand loyalty for them in India using a 500 INR per annum membership fee. This compels people to order on Prime what they saw in a shop.

It is Amazon vs the rest of Indian e-commerce industry which has consolidated itself and unified itself against this common adversary. My friend fears the demoralization that might happen if the homegrown e-commerce industry loses against the American e-commerce.

Unlike the Chinese government which has created an uneven playing field and unfair advantage for local e-commerce (Alibaba), the Indian government offers no such competitive advantages to local e-commerce so they have to compete on merit using lower capital.

Paytm as a payment bank is not allowed to buy their own bonds with the deposits, instead they have to deposit in a normal bank and use those interests to pay the customers.

Overall my friend’s opinion is that it is the wrong time to bet on e-commerce in India.