6 Facts about Indonesia E-Commerce & Cash-On-Delivery

Indonesian startups find ways to overcome the payment infrastructure challenges in the country. One of the most popular ways for online shops to cater to users without credit cards or bank accounts is to offer cash-on-delivery (COD). Users will log on to their favorite e-commerce site, add an item or two to their shopping cart, enter in their address, and then pay for the item in cash once it arrives at their doorstep.

Zalora Indonesia co-founder Hadi Wenas, who laid out six basic facts for us.

1. Indonesians love COD

Bank transfer accounts for half of all the site’s transactions. COD, meanwhile, makes up 40 percent of all the site’s transactions. The remaining 10 percent of transactions are conducted by credit card. As for Lazada Indonesia, COD is the most popular payment method.

Zalora Indonesia recorded 200,000 daily visitors while Lazada Indonesia had 250,000 visitors every day. COD plays a good part in turning all those visitors into customers.

2. Yes, returns upon delivery happen

But there’s not a lot of them. Item returns happen in less than five percent of all deliveries. As for customers returning an item in order to exchange it, that happens in under five percent of cases too. About half of all those returns happen immediately upon delivery (called “return at door”).

3. Few customers make bad returns

Some customers who try to outsmart the system. Some customers return dirty shoes after they’ve been used, some even try to scam Zalora Indonesia by ordering genuine Crocs but return fake ones they’ve bought elsewhere. Bizarrely, some customers have ordered shoes but attempted to return sandals instead.


4. COD is not the main reason for returns

The biggest reason for returns is the lack of information regarding the product. This happens when the website doesn’t show detailed enough product descriptions and measurements, and the item doesn’t match the customers’ expectations.

Another reason for product returns is bad service. Wenas admits to seeing quite a few returns because customers were angry simply because the delivery took a long time. This occurred often during the first three to six months of Zalora’s operations, but incidents have since become less frequent.

5. More mature markets equal more returns

Contrary to what most would assume, Wenas believes that as a market matures, it becomes even more likely that people try to take advantage of the COD system by ordering multiple items and then picking one when they all arrive.

“The return rate for developed countries should be two to three times bigger than us,” says Wenas. Lazada Indonesia’s Rizki Suluh Adi says that US-based Zappos even offers a one-year return policy, which contributed to the site’s growth in that country.


6. Indonesia’s logistics companies are more open to COD

Zalora Indonesia handles its own deliveries for the Jakarta area, and partners with three independent logistics companies to handle the rest of the nation.

As e-commerce is well-established in Indonesia, logistics firms understand the risks of COD and can carefully pick and choose which e-commerce firms to work with.

Logistics companies need to deal with returns at the door. When customers make returns at the door, it falls on the logistics companies to pick up the pieces. To save up money for the delivery process, the logistics companies tend to store many returned items first in their pool before delivering them back. If the returned goods haven’t got back to Zalora’s warehouse, the customers won’t get store credit reimbursement. That makes customers feel anxious. The only way to work around this is to establish good a partnership with the logistics companies so all can be happy.


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