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Cash-on-delivery payment option for Flipkart, Amazon purchases could be illegal, RBI states in RTI response

The widely popular cash-on-delivery (CoD) option available on most of the e-commerce platforms like Amazon and Flipkart might be illegal as "payment intermediaries are not authorised under Section 8 of the Payments and Settlements Systems Act", the Reserve Bank of India (RBI) has said, according to a media report.

Replying to a Right To Information (RTI) query, the RBI, according to The Economic Times said, "intermediaries include all entities that collect monies from customers for payment to merchants using any electronic/online payment mode."

Dharmendra Kumar, who filed the RTI query, told the newspaper that there lies a grey area in this regard and the central bank needs to put a certain mechanism in place so that e-commerce firms don't exploit ambiguity in the regulations.

The CoD, the idea brought into e-commerce marketplace by home-grown e-commerce giant Flipkart, accounts for almost half the online purchases in the country and is also one of the reasons why e-commerce has gained currency in India.

Despite the boom in the e-commerce sector and the government's push on digitisation, cash remains the king in India where customers prefer to pay in cash. However, this is not a trend witnessed only in India but is also the case in Southeast Asian countries. More than 70 percent of the region’s 600 million-plus people do not use banks - higher than the global average of about 30 percent - and e-commerce is projected to hit $88 billion by 2025.

 Cash-on-delivery payment option for Flipkart, Amazon purchases could be illegal, RBI states in RTI response

Representational image. Reuters

Cash on delivery costs e-commerce businesses more than other payment methods says Alibaba Group Holding-backed e-retailer Lazada Group. For example, sometimes a customer does not have enough cash on hand or is not at home to pay for the delivery. In such cases, the product has to be sent back to the seller which adds to the logistical costs, Lazada said. This is where mobile payments could help as they address some of these problems. They can also benefit buyers by keeping payment in an Escrow account which releases money only on delivery of the product.

Mobile payment companies bet they can transform their platforms into financial supermarkets, offering everything from loans to insurance on top of payment options.

As the e-commerce sector in India is expected to touch $120 billion by 2020, the government is in the process of framing rules to regulate the industry. While the sector is growing at an annual rate of 51 percent, the laws regulating the digital marketplaces are still evolving, says Food and Consumer Affairs Minister Ram Vilas Paswan.

To protect consumers, the government has issued guidelines for regulating direct selling and is in the process of issuing rules for e-commerce also, he said.

"These are guiding principles to strengthen the regulatory mechanism on direct selling companies and e-commerce for allowing legitimate business to continue, preventing frauds and protecting the legitimate rights and interests of consumers," Paswan said in a statement on 11 July.

E-commerce, which is India's fastest growing and most exciting channel for commercial transactions, is expected to jump from $30 billion in 2016 to $120 billion by 2020, he said.

With inputs from agencies

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Updated Date: Jul 26, 2018 13:42:49 IST