RBI Says Cash-On-Delivery Mode Not Authorised: 5 Facts You Need to Know!

My mother is a late entrant into the world of online shopping. However, now that she has dipped her feet in, she indulges once in a while. As a cautious and conservative person, she is uncomfortable providing her card details online, and always uses the cash-on-delivery option.

E-commerce portal Flipkart is credited with having brought the Cash on Delivery (COD) model to India in 2010.

This was an innovative way to tackle the unique Indian trait of using cash for purchases, the discomfort of sharing card details on websites, lower penetration of credit/debit cards and the generally underdeveloped electronic payments ecosystem.

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COD was the fulcrum around which the humungous growth of Indian e-commerce was built.

This citadel may now be under regulatory siege. In response to a Right to Information (RTI) query that was sent to the RBI, this method of making online purchases is being scrutinised for its legal validity.

Here’s what you ought to know:

1. This issue has come into the spotlight after Dharmendra Kumar of India FDI Watch sought clarification on whether the RBI permits e-commerce portals to accept cash on delivery on behalf of other third party vendors.

2. In the words of RBI, “Aggregators/payment intermediaries like Amazon and Flipkart are not authorised under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007”.

3. Essentially, this means that the whole COD business is in a legal grey area. This becomes especially sticky as it is not only Flipkart and Amazon but a legion of their service providers – courier companies, e-commerce-based delivery platforms that collect and handle cash on behalf of the e-commerce players.

4. From the Government perspective, it is a nightmare to reconcile the cash payments made by the buyer to the purchases, the seller, and the enablers (Amazon/Flipkart/Delivery agencies).

In a physical transaction, the relationship is clearer.

5. But this is still in the realm of speculation, with legal experts divided between the legality or the lack of it. The statement by RBI does not make it explicitly illegal – all that is said is that COD is not specifically mentioned in the Payments and Settlement System Act, 2007. That doesn’t make COD illegal by any means.

So, while we debate on this issue, I just found a nice pair of shoes online, and am ordering them, via COD.

(Edited by Shruti Singhal)

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