The biggest factor contributing to India's ecommerce boom has been the cash-on-delivery (CoD) option, introduced by Flipkart in 2010. It still accounts for nearly half the ecommerce purchases in the country, having won over the older generations suspicious of online transactions as well as the huge population chunk outside the ambit of netbanking and credit cards.
But, a recent RTI query has revealed that it is actually a grey area where the Reserve Bank of India is concerned. Aggregators/payment intermediaries like Amazon and Flipkart are not authorised under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007," the apex bank said in its response to the RTI application, adding that, "RBI has not issued any specific instruction in this regard," the Economic Times reported.
In the CoD method, Flipkart, Amazon and other ecommerce players collect cash from customers on behalf of third-party vendors at the time the goods are delivered instead of demanding online payment at the time of placing the order.
The RTI had been filed by Dharmendra Kumar of India FDI Watch. The latter is an affiliate of ACORN International and is committed to "building awareness and facilitating grassroots action to prevent the takeover of India's retail sector by corporations".
Kumar's query had requested the RBI to confirm whether "cash-on-delivery payment collection and disbursement to ecommerce merchants by ecommerce marketplaces such as Flipkart and Amazon (are) covered under the definition of payment system and system provider of the Payments and Settlements Systems Act, 2007, No. 51 of 2007 by acting as intermediaries and system providers. If yes, are these payment systems authorised as per Section 8 of the said Act?"
The RBI's response makes it clear that there is no clear law governing the CoD transactions. "If ecommerce firms have been collecting cash-on-delivery on behalf of merchants without RBI's authorisation, there must be a grey area in the law they are exploiting," said Kumar. "The RBI should have a system in place to ensure such things do not happen."
In fact, the Act in question specifies electronic and online payment, but doesn't make explicit mention of money received through the CoD route. "Intermediaries [as defined in the Act] would include all entities that collect monies received from customers for payment to merchants using any electronic/online payment mode, for goods and services availed by them and, subsequently, facilitate the transfer of these monies to the merchants in final settlement of the obligations of the paying customers," said the RBI in its response.
However, citing experts the daily added that the rules don't necessarily invalidate CoD transactions. "This by no means makes the cash-on-delivery model illegal or unauthorised," Abhishek A Rastogi, partner at Khaitan & Co, told the daily. According to him the Act "should apply to cash-on-delivery transactions by e-commerce operators" since the legislation seeks to regulate payment systems, which are defined as anything that enables such transactions between payer and beneficiary. "It (CoD) can be done through a contractual arrangement between ecommerce operators and merchants. These will be regulated by the Payment and Settlement Systems Act, 2007, rules and regulations framed thereunder," he added.
Whether CoD is entirely above board or a grey area as Kumar believes, one thing is for sure: It isn't a simple process. "There is a systemic risk involved in collection of cash on behalf of sellers," a spokesperson of the All India Online Vendors' Association (AIOVA) told the daily. "The cash is not collected directly by the ecommerce platform but by courier companies they employ on their behalf. The ecommerce firms then transfer it to the sellers. This is a long chain where the sellers' money is changing so many hands," added the group of 3,500 online vendors/sellers operating in various ecommerce marketplaces.
The money involved, already no mean amount, is likely to keep increasing, at least till the country embraces digital payments more wholeheartedly. Last year, a Morgan Stanley report predicted that India's online retailing business would mushroom over 1,200 per cent to $200 billion by 2026, up from $15 billion in 2016.
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today