The Fintech Trifecta that led to the e-commerce boom in India

By Khilan Haria

Rewind to the last decade, when you would probably have bought your first book using an e-commerce website. It may have been an exciting experience, at least it was for me. The thought of receiving a product from home was fascinating. But on the flip side, there was also a lot of fear when it came to payments. Most of us preferred to choose cash on delivery, a kind of insurance if the products never arrived. Fast forward to 2022, the Indian e-commerce market currently stands at $84 billion and COD now accounts for a very small percentage of e-commerce transactions.

The Indian startup story has seen one revolution after another. While the 2010 decade was the e-commerce era, the current decade is the fintech era. However, for the first time in Indian startup history, two successive eras have complemented each other so well to enable growth in both sectors.

Fintech-Commerce Duo

When CoD was launched in India in 2010, the use of digital payments was less than 1% of India’s money movement, making CoD a significant breakthrough for e-commerce companies. But just relying on cash on delivery would have proved to be a major hindrance to the growth of the e-commerce industry in India, mainly because of the crunch it would have caused in the working capital cycle of the merchant.

Also read: How apps can unlock the potential of e-commerce in mobile-first economies

When a buyer orders online through CoD, the cash is collected by the delivery manager, who then passes it on to the delivery manager. At this stage, the cash is reconciled and sent to a central hub. When money accumulates here, it is deposited into the bank account of the third-party logistics provider (3PL), which then transfers it to the online retailer. The whole process takes up to 2 weeks and complications are further added if the order is a Return to Origin (RTO) order.

Barring a capital crunch, the total cost of cash orders (including RTO) was upwards of 3% for most online retailers, which is higher than the payment gateway fees charged for digital payments.

Therefore, activating the growth journey for e-commerce was essentially a three-part affair. First, enable a shift from CoD to online payments. Second, resolve the crisis in the operational capital cycle. Finally, for the remaining CoD orders, make them more predictable and reduce cost inefficiencies in the process. This is where the fintech industry stepped in.

The trifecta of e-commerce growth

The main reason, apart from the trust in online platforms, that consumers chose CoD was because of the accessibility and convenience associated with Cash. But if digital payments were to be made more convenient and safer than CoD, consumers would naturally switch to digital payments. The biggest solution for both accessibility and convenience has been our homemade

real-time payment network UPI. UPI was mobile first and made payments easy and accessible to the masses by opening third-party apps to build best-in-class UX on top of this revolutionary payment infrastructure. In addition, by offering more payment methods, fintech enabled e-commerce companies to take the first step towards shifting consumers to online payments. This combined with rewards and discounts linked to digital payments motivated consumers to make the switch. Also, fintech enabled e-commerce sites to take advantage of different payment methods such as subscriptions, which helped them expand their revenue potential and provide predictability to their cash flows. With regulations such as tokenization and AFA, digital payments are becoming safer to increase consumer confidence in digital payment infrastructure, further accelerating the shift.

Also Read: UPI Payment Fees: Free UPI Transactions To Stay, Modi Govt Not Considering Any Fees

The challenge of operational capital crisis was solved by fintech by providing e-commerce sellers with easy working capital and cash advances. Through the power of data analytics, fintech companies could analyze the cash flows of the sellers and assess the risk of the working capital and immediately disburse the same. This boosted the growth of e-commerce sellers as they received the amount they needed to grow their business at the right time.

Despite all this, there are still some orders that are CoD. Loose ends that need to be tied up. Fortunately, with the help of data analytics, AI and ML, the remaining CoD orders could be made safer for sellers. Using technology, fintech can now help weed out risky orders and undeliverable addresses, while merchants can issue pre-paid CoD links to their customers to reduce risk. Through our analyses, we have seen that by taking such measures, companies can save up to 30% of operating costs.

The bright future

In the last year, according to our data, e-commerce was the 5th largest contributor to all the transactions made on the Razorpay platform, growing by 84.37% and the future only looks brighter. With online transactions becoming safer and faster, e-commerce will see a renewed vigor in growth.

(The author is SVP and Head of Payments, Products, Razorpay. Views expressed are personal and do not reflect the official position or policies of Financial Express Online. Reproduction of this content without permission is prohibited.)