Four reasons payment links continue rising in popularity
The digital payments space has become more accessible and much easier to navigate for businesses and consumers alike. In MENA, the once heavy reliance on cash for making payments is slowly dying down - and the reluctance that came with trying new payment methods is a thing of the past.
A recent study found that 88% of people in the UAE have used at least one digital payment method in the last year. A clear testament to the acceptance within the region for new and improved ways to transact.
One leading method which is proving to be very popular, is payment links. At Mamo, we’re no stranger to payment links. But for the curious, we’ll be looking at the many reasons businesses are turning towards payment links, and why consumers expect them whenever it’s time to pay for a service.
Cash on Delivery isn’t guaranteed
Cash on Delivery operates under the assumption that the receiver will be available at home, with the exact change in hand, satisfied and ready to accept the package delivered to them.
While that is an ideal scenario, more often than not, it doesn’t play out like that. Cash on Delivery returns are 19% higher as compared to the 8% returns by shoppers who pay with their credit card. The age old routine of refusing packages at the door can lead to businesses incurring more costs.
Plus, there’s a disruption in inventory counts now that a package that was marked as sold is sent back to the business. This disruption is further amplified for small businesses who don’t have proper order return infrastructure and support to follow up on orders that are turned away.
Cash on delivery is restrictive
The rise in technology has been adapted widely by certain demographics - namely Millennials and Gen Z buyers. They routinely seek opportunities where they can use their credit card whilst shopping online, incentivized by the reward programs they’ve subscribed to.
For buyers who are in the habit of using their card for payments, the option of COD is incredibly restrictive and inconvenient. It forces them to carry cash, and lose out on points. Leading to a high likelihood of them looking elsewhere for similar services that give them more ease in payment. This causes businesses that don’t have a variety of payment methods to lose out on a prospective customer.
Cash on delivery is expensive
For many businesses, COD is seen as the cheaper option. Digital payment solutions charge a transaction fee, which may seem expensive compared to its cash alternative. But a lack of transparency in charges doesn’t mean they’re not present.
Most businesses hire third party logistic firms for deliveries - and naturally, they’ll be charging a markup on top of the true cost of COD. But let's assume that a business decides to offer Cash on Delivery services in-house. Here are some (conservative) cost assumptions.
Typical cost of a scooter: $2,320
- Typical cost of a motorcycle: $6,089
- Average cost of a delivery vehicle: $4,204
- Average lifespan of these vehicles: 3 years
- Average hourly cost of delivery: $0.49/hour [$4204 / (3 yrs x 285 days x 10hrs)]
- The cost of gas: $0.95/L
- Average hourly wage of drivers: $3.56/hour
- Hiring overhead (visas, insurance, etc) of delivery drivers: $2,400/year
When we plug these numbers below, we see that the Cash on Delivery costs aren’t as convenient, or affordable, as they’re supposed to be.
And these numbers don’t factor in the cost of depositing, tracking, and logging in the cash collected - which requires hiring separate personnel. Pair that with the responsibility on the driver to deliver the cash on time and safely - and we see the ‘convenience’ that was promised appearing much more complicated.
The solution
It would be irresponsible to call for a ban on Cash on Delivery as a payment method - especially with the place it holds within the MENA region. But it would be equally as irresponsible to not explore other avenues for payment collection. Digital payment links, for instance, offer a secure and instant way to collect money for goods and services without any of the aforementioned risks.
An even smarter approach is to find a good middle ground between physical and digital deliveries. Businesses can make physical deliveries and then have customers make contactless payments through a payment link before or during the time of delivery.
As the world evolves, so does technology – for the comfort of consumers and the growth of your business. So, when will you be making the switch?