Why are high cash-on-delivery rates a problem for IPO-bound Meesho?

More than 76% of the 1.59 billion orders the company shipped in FY25 were COD, down from 85% in FY24 and 88% in FY23, according to updated draft IPO papers Meesho filed with the stock exchanges earlier this week.

While the share of COD orders has been declining gradually, it remains alarmingly high. Let’s take a close look at why this is a problem for Meesho and other e-commerce companies, especially those that focus on small towns.

Why is COD so popular in India?

Despite the rise of digital payments, most online shoppers in India continue to prefer doorstep payment over advance payment, especially in tier-II and tier-III towns. According to industry estimates, the penetration of digital payment modes such as the Unified Payments Interface (UPI) in rural areas was just 15% as of 2024, even though the number of internet users has grown multifold in recent years.

More than 65% of online shoppers in India prefer COD to other types of payment, especially for high-frequency purchases such as clothes and accessories, according to a 2024 study by the Indian Institute of Ahmedabad. And consulting firm KPMG estimated that COD accounted for nearly 60% of all e-commerce transactions in India in 2024.

India’s tier-II and tier-III towns are the primary users of COD as trust in e-commerce and digital payments remains low in those areas. COD also remains popular as it gives shoppers, especially senior citizens, a sense of security in case an incorrect or damaged product arrives at their doorstep. COD is also known for encouraging first-time shoppers to transact online.

Digital fraud is also a worry, with cards and internet banking accounting for 56.5% total bank fraud cases in FY25, compared to 49% in FY23, according to RBI data. UPI fraud stood at ₹485 crore in the first six months of FY24, or 0.4% of the total UPI transaction value for that period, according to government data.

Digital fraud is also a worry, with cards and internet banking making up 56.5% of total bank fraud cases in FY25, up from 49% in FY23, RBI data shows.

Why is this worrying for e-commerce companies?

A high percentage of COD payments usually translates to high returns to origin (RTO)—orders for which delivery was unsuccessful and that were returned to the seller. This costly ‘reverse logistics’ hits companies’ earnings hard. It’s also common for sellers to delay—or ignore completely—payments to e-commerce companies from their COD collections, which further dents their growth.

Meesho, Flipkart and Snapdeal have the most to lose from this, given their significant presence in small towns. In May 2024, Meesho filed a police complaint in Bengaluru against 35 delivery vendors for allegedly failing to deposit the COD payments they had collected from customers.

Meesho highlighted this risk in its draft IPO papers: “COD orders expose us to the risk of lower successful deliveries where consumers may refuse to accept the delivery of the product, leading to increased logistics costs and operational inefficiencies.”

High returns have been a consistent problem for the e-commerce industry in general. Overall, 15-16% of all e-commerce orders are either partially or fully returned, according to research firm Forrester.

How is Meesho addressing the problem?

E-commerce platforms have realised that small-town shoppers are critical for their growth. A February 2025 report by Anarock showed that the share of online shoppers in tier-II and tier-III cities grew to 56% in FY24 from 46% in FY20. India’s e-commerce market was valued at $125 billion in FY24 and is projected to touch $345 billion by FY30, the report said.

The bulk of Meesho’s customers are in small towns, so the company is expected to approach the issue with caution. While the success rate of COD orders was as high as 77.7% in FY25, it is trying new things to encourage prepayment.

In September 2024 the company introduced Meesho Balance, a third-party-enabled gift card solution that allows consumers to receive refunds in the form of gift cards. It also offers the usual bouquet of prepayment options, including netbanking, cards, UPI, and buy-now-pay-later.

The company has set up guardrails to restrict COD options for repeat offenders and charge a convenience fee to consumers with high return rates. It has also set up standard operating processes to manage and monitor outstanding payments, particularly in relation to cash collection by last-mile delivery partners.

These efforts seem to be bearing fruit. The share of prepaid orders relative total orders shipped grew to 23% in FY25 from 14.6% in FY24.