Despite the digital boom, Cash on Delivery (COD) continues to dominate in tier 2 and 3 cities, where trust in online payments is still developing.
IndiaRetailing Insights: In India’s rapidly evolving retail and payment landscape, the Unified Payments Interface (UPI) has emerged as the dominant payment method.
UPI transaction volumes recorded a 52% year-on-year surge to 78.97 billion in the first six months of 2024, according to the India Digital Payments Report released in October 2024 accounting for a majority of digital transactions across sectors. Its seamless and instant nature has positioned it as the go-to choice for urban consumers and tech-savvy shoppers.
Meanwhile, Cash on Delivery (COD) continues to hold ground as a vital payment method in tier 2 and 3 cities, where trust and convenience often dictate purchasing behaviour, according to different brands and their representatives IndiaRetailing spoke to.
Brands catering to urban markets are experiencing a surge in UPI transactions. For example, Gurugram-based Culture Circle, a streetwear platform catering to Gen Z, reported that 60% of its payments are made through UPI.
Similarly, Gurugram-based personal care brand Earthraga saw UPI accounting for 70% of its sales, showcasing its dominance for quick and secure payments.
“India’s UPI system is unparalleled globally, particularly for smaller transactions,” said a spokesperson from Tiger Marron, a fashion brand from Gurugram that sells leather and vegan goods highlighting its speed and functional advantages.
However, UPI’s Rs 1 lakh daily transaction cap has kept credit cards relevant for high-value purchases. Luxury watch brands like Seiko confirm that credit cards remain the preferred method for premium products due to their liquidity and reward benefits.
Paritosh Bindra, Vice President of e-commerce at Blackberry’s Menswear, shared insights into the evolving digital payment trends between July 2024 and November 2024. The data highlights the growing dominance of UPI, which averaged 35.7% of total transactions across the five months.
Cash on Delivery (COD) remains a crucial method, representing 29.2% of transactions but showed a noticeable decline in November (17.1%), signalling a shift towards digital payments. Credit and debit cards held a steady 22.1% share, suggesting that consumers continue to rely on cards for larger purchases.
Instalment options like “Pay in 3 EMI” gained momentum, contributing 8.5% of transactions, while Buy Now, Pay Later (BNPL) still holds a minimal share of 0.7%. Wallets and Netbanking continue to have a small presence, with Wallets at 0.9% and Netbanking at 1.5%. This data underscores UPI’s dominance, COD’s enduring relevance, and the growing preference for flexible payment solutions in the e-commerce sector.
COD: Trust anchor in emerging markets
Despite the digital boom, Cash on Delivery (COD) continues to dominate in tier 2 and 3 cities, where trust in online payments is still developing. COD accounts for 78% of transactions at beauty and wellness brand Nourish Mantra and 80% at Noida-based wellness brand Herbal Chakra, making it crucial for reaching hesitant online shoppers.
A recent report from New Delhi-based service provider GoKwik revealed that COD gross merchandise value (GMV) surged to 65% during the Black Friday sale period, indicating its relevance. However, brands are making efforts to encourage prepaid payments by offering incentives like discounts and loyalty rewards. Herbal Chakra has observed a shift toward prepaid methods, with the COD-to-prepaid ratio moving from 80:20 to 70:30 as repeat customers grow more confident.
According to these brands, COD works as a trust-building tool, particularly for first-time buyers. It ensures that customers pay only after receiving their goods, a feature highly valued in semi-urban and rural areas.
Dual payment trend in retail
The contrasting popularity of UPI and COD reflects the diversity of India’s retail market. UPI leads in urban areas, driven by its speed and convenience, while COD remains a critical enabler for expanding into less digitally mature regions.
Credit cards also maintain a strong foothold in India’s payment landscape, particularly for high-value transactions and online purchases. Brands like Culture Circle report that 36% of their transactions come from credit card payments, underscoring the platform’s appeal for luxury buyers seeking security and rewards. Tiger Marrón emphasizes the importance of offering diverse credit card options, including Visa, MasterCard, and Amex, which cater to serious spenders who value privileges and customer support. For larger transactions exceeding typical credit limits, customers often switch to bank transfers or cheques due to functional constraints and psychological comfort with traditional payment methods.
Net banking, while less prominent than UPI or credit cards, remains relevant for high-value purchases. It offers security and ease for those preferring direct bank integrations, especially for commodities like cars or luxury watches, as highlighted by Tiger Marron. This method is particularly significant for older or more traditional customer segments who prioritize familiar and proven payment channels.
Retail experts suggest that the future lies in offering a balanced mix of payment options to cater to all segments, backed by efforts to build trust in digital payments.
