You place an order for any product online and pick cash-on-delivery (COD) as the payment option. The website then ships you the item and you pay cash to the delivery boy and take possession of the product. While this process may sound quite normal, Reserve Bank of India now says that the CoD method of making payments does not have its approval.
According to an Economic Times report, this has been reveled through a reply the RBI gave to an RTI application. Interestingly, more than half of the transactions done by the leading ecommerce companies in India are done through this mode of payment.
In the words of RBI, âAggregators/payment intermediaries like Amazon and Flipkart are not authorised under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007â.
As it happens with every Act of Law, there are different interpretations to the wording in the 2007 Act. Some lawyers say that the Act itself does not contain a specific mention of cash payment against which delivery is effected and those in agreement with this reasoning claim that there is nothing illegal about the CoD mode of payment for online purchases.
As per the ET report, the query to RBI asked it to âconfirm if cash-on-delivery payment collection and disbursement to e-commerce merchants by e-commerce 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?â
RBI, in its reply reportedly said that it has not issued any specific instruction in this regard.
Perhaps, the very question, under RTI, was framed would have elicited only the reply as above by RBI, since there is neither a mention of cash payments in the Act and therefore there is no question of it being âauthorisedâ.
The Payment and Settlement Systems Act, 2007 is the Act being discussed here and there is a definition of the word intermediary used in the Act and RBI has gone on to give the definition of this term in its RTI reply as those including all âentities 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 customersâ.
The query was raised by India FDI Watch, an activist group, that claims to âstop the takeover of Indiaâs retail sector by corporationsâ. Naturally this group feels strongly about any practice that the ecommerce giants adopt to popularize their business.
There are multiple angles to this issue. There are still a large body of buyers who would want to make online purchases but are strictly against using their credit/debit cards online for fear of it being misused. This body of buyers cannot be wished away by refusing the CoD choice. The other issue involves the very mechanism involving the collection of cash by the courier delivery executive and remitted to the courier company. From there, it gets transferred to the ecommerce company and finally finds it way to the account of the sellers on the ecommerce platform. There are risks inherent in such a system.
Online retail business is likely to grow into a $200 billion business in another 7-8 years (from just around $15 billion now). No government can ignore this segment.