Why Payment-on-Delivery Impacts Nigerian E-commerce

In a rapidly changing environment of Nigerian e-commerce, the Payment-on-Delivery (POD) mechanism is a security net for a conscious online buyer. POD has been at the forefront in assisting e-commerce to gain ground since Jumia dominated the field in the early 2010s, and mobile-based shopping has become the norm. However, by 2024, a mighty change is in motion: there is an increase in the number of digital payments, changes in the regulatory system, and shifts in consumer behavior. The big question here will therefore be, what is the future of Payment-on-Delivery in Nigeria with this digital change?

The e-commerce environment in Nigeria is fascinating and has reached that stage. The e-commerce market in Nigeria has an estimated market size of USD 8.53 billion and is anticipated to hit the mark of USD 14.92 billion by 2029, and the CAGR of this market is pegged at 11.82% in the foreseen future (2024-2029). However, contained in this fireball growth contour is a payment paradox that is still defining the future of online shopping in Nigeria: although Nigeria has cemented its stamp of becoming Africa leading digital payment economy by 2024 when it will record 7.9 billion real-time payments a year, cash on delivery has demonstrated an inertia to find itself lodged in the desired of many consumers due to the security and literal sense that the cash on delivery payment product brings.

In this blog, we discuss the future of POD in Nigeria, the role of the cashless policy in Nigeria, the rapid development of fintech, and the increased trust in online payments. We will be deconstructing the latent logistics and profitability of POD and plotting out its digital rivals, establishing themselves in the Nigerian e-commerce environment.

 

The Rise and Decline of Payment-on-Delivery in Nigeria

The decade-long submission of Payment-on-Delivery in Nigeria filled the gap between lazy buyers and online trading brands. Consumers were able to preview their items and pay for them only after they were satisfied with their products; hence, it allayed the fears of cheating, low quality of goods, and unreliability of services.

A 2022 KPMG Nigeria report shows that at this time, more than 60 per cent of the e-commerce purchases made in Nigeria were still done through POD, and this percentage is most likely to be stronger in tier-2 and tier-3 cities, which have low digital literacy and UBI levels.

However, there is a price; POD is costly and unproductive. Profits are erased through failed deliveries caused by customer unavailability, goods rejection and dealing with cash. It makes planning logistics harder, and the rate of returns remains high; this creates significant logistics problems in Nigeria with regard to last-mile delivery.

 

Issues Behind POD Popularity in Nigerian E-Commerce

The persistence of the popularity of POD could be related to both structural and psychological threats posed to the Nigerian e-commerce industry:

1. Online Payment Trust Deficit

Although there has been increased use of digital banking and mobile wallets, online payment in Nigeria has been low in trust. The tales of illegal withdrawals, phoney stores, as well as vendors put off the electronic purchases. Based on an Enhancing Financial Innovation & Access (EFInA) report of 2023, a small proportion of 36 per cent of Nigerians surveyed were completely sure of online payments.

 

2. Poor Addressing System

Logistics of POD in Nigeria are hampered by being inaccurately addressed, housed in informal settlements, and not having a standardized road network. It makes it difficult to fulfil orders, slows down the delivery of goods, and adds to costs, and the failure rate in first-time deliveries is 28 per cent as per Statista Africa 2023.

 

3. E-Commerce Returns at High Rate

Not surprisingly, returns on e-commerce, primarily POD, are becoming a major nuisance in Nigeria. Customers may last minute cancel an order without prepayment agreements. Jumia, Temu and Konga had the highest rates of returns, between 15 to 25 per cent, particularly in promotional sales.

 

The Digital Shift: Trends Redefining the Payment Landscape

Although POD served as a shock absorber against these problems in the past, these times are changing with the changes of several matters, which are both technological and regulatory:

1. The Nigerian Fintech Impact

Nigeria has one of Africa's most robust fintech ecosystems. New businesses such as Flutterwave, Paystack and Moniepoint are making it easy to use digital payments in Nigeria with secure and friendly interfaces and real-time payment confirmation. McKinsey also reveals that the value of digital payments in Nigeria has increased in 2023 (by $24 billion) as compared to 2021 (by 18 billion).

 

2. The Cashless Policy Implication

In early 2023, the Central Bank of Nigeria (CBN) embarked on an intense drive to ensure its country became cashless, limiting cash withdrawals and rewarding transactions made via digital modes. This led to a 45 per cent plus mobile wallet adoption rate growth between the first and fourth quarters of the year 2023, as indicated by NIBSS (Nigeria Inter-Bank Settlement System).

The effect of this policy on e-commerce profitability was also ripple-like in Nigeria, where the cost of handling cash across the board was also minimized, in addition to enhanced speed of transactions.

 

3. Enhanced Digital Infrastructure

Nigeria has an available internet base of more than 122 million, a smartphone base of 80 million by 2024, and this forms a strong base on which digital commerce provisions can be served. Mobile apps to carry out banking, USSD payments, and QR-code payments are fast evolving, particularly among the younger customers.

 

Future POD in Nigeria: A Phase-out or Evolution?

Nigeria stands at a crossroads with regard to the future of POD. The digital transformation is growing, and the cost-to-value ratio of POD is increasing; hence, it is increasingly unfavorable to justify the cost of using POD by businesses with thin margins.

Likely Trends:

1. Hybrid Payment Structures

Instead of the sudden termination, some companies are testing the concept of the hybrid business format, in which customers make a small initial payment, and the rest is paid when the product arrives. This eliminates dummy orders, but at the same time, does not disappoint buyers.

 

2. Escrow-Based Transactions

Fintechs are also considering escrow, in which money is retained by a third party and liberated only after an order is confirmed. This is a digital counterpart of POD, which creates trust without liquidity risks.

 

3. Subscription-Based E-Commerce

In the big cities, a slow movement of subscription-based trade, particularly in such categories as groceries, health supplements, and baby products, is taking place. Such models are based on the use of digital payment in Nigeria and exclude the requirement to use POD.

 

4. Retail Partnership and Pick-Up Points

In the localities that do not have a good logistics network, some brands are developing the last-mile delivery schemes with retailers. Online purchases are made, yet products purchased by customers are collected at their nearby kiosks by merging safety and comfort.

 

Implications for E-Commerce Brands and Consumers

The ongoing degradation of POD will redefine not only the means of payment but also the whole e-commerce model of business. Here’s how:

For Businesses:

- Lower returns and failed shipment costs.

- A better flow of cash because of accelerated, prepaid sales.

- Increased scalability and process of logistics.

- Stronger integration of fintech for smooth digital payment.

For Consumers:

- Extra self-confidence through safe digital transaction tools.

- Reduced speed of delivery and resolution because of better processes and digital workflows.

- Usage of digitized payment tool based on reward (Discounts, loyalty schemes).

- Reduced restrictions towards the access of international or cross-border goods.

 

Redefining Trust in a Digital Economy

The controversy with POD goes down to the level of trust, and it is not only about the payment means. POD has been relied on by Nigerians since the structures that offered a guarantee of quality, clarity, and redress did not work. The necessity of POD is bound to reduce as digital platforms are getting more responsible, human-centric, and incorporated.

However, this will not come in one night. Digitalization of payments should not be the only aspect required to improve logistics, consumer education, and the level of digital inclusion. The World Bank reports that 38 per cent of grown-ups in Nigeria are financially cut off. POD will continue to survive, in some way or other, even though it is becoming all but inefficient, unless these populations are incorporated into the mainstream.

 

Conclusion

Payment-on-Delivery will not become the future of success in Nigeria in terms of its absolute demise, but in terms of its repositioning. As Nigeria becomes increasingly digital, thanks to fintech advancements, and adopts cashless policies, e-commerce is developing, making POD no longer essential but a liability.

To become competitive and make a profit, Nigerian e-commerce-related brands need to take initiatives to:

- Support the new types of payments, such as escrow and advance payments.

- Invest in electronic literacy programs that would establish trust in online payments in Nigeria.

- Partner with fintechs to make wallet-free digital payments rewarding, digital, and seamless.

- To reinforce last-mile delivery in Nigeria, facilitating prompt and verified e-deliveries.

The bottom line is that the POD era is coming to an end; however, its values on trust, flexibility, and customer-centricity should serve as the backbone in this new digital frontier.