When online shopping first started in India, lack of customers faith was something that resist the growth of e-commerce companies in there first couple of years. But then in 2010 Flipkart came with an amazing idea called Cash on Delivery. After then entry of Cash on Delivery not only makes online shooing safer, but also act as boost engine in the growth of e-commerce sector.
Like we all know that when we select this option on any e-commerce website, they offer us a service through which you have to pay for the product when it successfully came in your hand. While this payment system is easy and ensure safety to customers, Reserve Bank of India has a different opinion about it. Implementation of this opinion can badly shake the Indian Economic.
According to an Economic Times report, Dharmendra Kumar from India FDI Watch, an organization of small traders and farmers had filed an Right to Information query regarding the legality of Cash on Delivery model used by e-commerce players.
Dharmendra asked RBI to confirm whether the cash-on-delivery (CoD) payment option and disbursement of money to e-commerce merchants by e-commerce marketplaces such as Flipkart and Amazon comply with the Section 8 of the Payments and Settlements Systems Act, 2007 or not.
In response to this Reserve Bank of India replied saying that the “aggregators/payment intermediaries like Amazon and Flipkart are not authorized under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007. Reserve Bank of India strictly said Cash on Delivery model is not allowed for online marketplaces operating in India.
The Payment and Settlement Systems Act, 2007 is set up by the RBI. Payments and Settlements Systems Act, 2007 was first came into action in August 2008. It provides the right of regulation and supervision of payment systems in India to RBI. Basically It give a wider idea that how online and electronic payment systems should get run in India.
However, if we clearly read the documents of this act then there is no clear mention of CoD payment. The act has no explicit mention of CoD which creates the confusion on whether the payment mode is legal or illegal. It also raises a question on the validity of this payment form.
Even RBI doesn’t give any clarification on there statement mention the reasons behind terming the Cash on Delivery system illegal.
Cash on Delivery was one of the major reason behind the fast growth of e-commerce industry in India. Removing the Cash on Delivery options will have a major impact on India’s e-commerce sector. Over more than half of the transactions done by the leading e-commerce companies in India are done by Cash on Delivery option. There are many online shoppers in India who depend solely on the CoD for the purchases made from Flipkart or Amazon as they don’t have debit or credit card.
Recently Walmart purchased 77% stake in Flipkart for $16 billion. This shows that how big the Indian market is for e-commerce website. Online retail business is likely to grow into a $200 billion business in another 7-8 years from just around $15 billion now. If RBI explicitly makes the model illegal this could affect the e-commerce sector in India worth more than 30 billion.
To avoid this disaster, RBI has to find a middle way with e-commerce companies or if not then RBI has to bring some improvemnt and changes in the Payments and Settlements Systems Act, 2007 by keeping current and future India in mind.
If you are interested in reading the Payment and Settlement Systems Act, 2007, click here.
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