Cash on Delivery

Posted on by Samir Shah

Cash on delivery as a payment option for online purchases in Kenya has proliferated in recent years. This is due, in large part, to adoption of this model by large retailers. We argue that this is not a sustainable model in the long term.

The problems with cash on delivery

Cash on delivery is not an ideal payment method for buyers or sellers:

  • The risk of loss or theft of cash in transit is the key concern that we hear from all sellers considering this option.
  • It makes it difficult for sellers to outsource delivery: they must either use their own trusted delivery agents, or enter a risk transfer agreement with a delivery service provider — typically at increased cost.
  • It requires the buyer to have potentially large amounts of cash on hand.
  • It is very easy for the customer to change their mind, and refuse the delivery at the last minute. This happens frequently and increases the cost of operations for the merchant.

Despite these drawbacks, cash on delivery accounts for over 50% of sales for sites that we monitor, so it is clearly a popular option.

The small number of credit cards in the country is often cited as a reason for this. This fails to take into account the obvious alternative: the ubiquitous mobile payment options. Mobile payments are widely accepted online, but are largely ignored in favour of cash on delivery.

M-PESA logo

The ubiquity of mobile payment options such as M-Pesa in Kenya makes the popularity of cash on delivery seem even more strange at first glance.

On the face of it, mobile payments should be more convenient for both buyer and seller: neither party has to handle large amounts of cash; the transaction is secure and traceable; payments are much easier to reconcile.

So, why is cash on delivery still so popular? The answer: trust.

Consumers lack trust

When a buyer makes a payment online, they are trusting the seller to fulfil the agreement by delivering the goods at a later time. In most developed countries, this system is so well established that most buyers implicitly trust that the seller with fulfil the agreement. There are also strong legal protections for the consumer in the event that the seller fails to meet their obligations.

Trust is the reason that companies like Jumia are promoting cash on delivery. Many Kenyans prefer cash on delivery to payment in advance because they do not have to trust the seller.

Cash on delivery does not require the buyer to put any faith at all in the seller: if their goods do not arrive, they have not lost anything; if they do arrive but are not what they were expecting, they can turn away the delivery at no cost.

M-PESA logo

Jumia was one of the first large retailers in Kenya to start accepting cash on delivery.

While this model may be sustainable in the short term — and may, as companies like Jumia assert, help to develop the online sales market — it is not in the interests of either buyers or sellers for it to be a permanent fixture. Retailers need to have a strategy for migrating away from cash on delivery.

What should retailers do?

Many retailers have no choice but to accept cash on delivery if they wish to compete with other online merchants who are doing the same at present. The long term objective, however, must be to bridge the trust gap and encourage customers to adopt the prepayment model that is widely accepted elsewhere.

An intermediate step is to transition customers away from cash on delivery to mobile payment on delivery. Relatively little effort is required to put in place systems that allow real-time confirmation of mobile payments, and it still gives the consumer the ability to inspect the goods before making payment. It is still difficult to outsource delivery however, and so this is still not ideal.

The second and more difficult step is to build trust so that prepayment is acceptable to consumers. Recent regulation such as the Consumer Protection Act (2012) is helpful in this regard, but enforcement and consumers’ awareness of their rights are still poor.

Retailers with an established brand can leverage customers existing trust by promoting free returns, as a way of encouraging customers to pay upfront.

General credibility is also an issue, with many Kenyan websites failing to give the consumer confidence that they are buying from a reputable merchant. High quality content and ease of checkout are factors that affect credibility.


  • Due to its adoption by large online retailers, many retail businesses are being pressured into accepting cash on delivery.
  • Cash on delivery is not an ideal form of payment for both buyer and seller, and is only popular because of a lack of trust in the marketplace.
  • In order to transition away from cash on delivery, retailers should encourage cashless forms for payment on delivery (e.g., mobile payment) and promote free returns.
  • In the long term, retailers need to build trust and increase consumer awareness of their rights, so that consumer confidence in prepayment is developed.