Cash on delivery and return rates in the Middle East

I came across Aramex COO Iyad Kamal’s presentations at the Arabnet conference while browsing the Twitter feed of Wamda Capital’s Fares Ghandour.

Aramex is one of the Middle East’s leading e-commerce logistics providers and this gives it a lot of information into how e-commerce is developing in the region. Some of our companies already operate in the Middle East, and it’s a natural expansion ground for many others, so the data in this presentation is very valuable in helping them define their Middle East strategy.

What’s particularly striking is the very high percentage of e-commerce orders in the Middle East where the order is paid for by cash on delivery (COD) rather than credit card (CC). At 76%, COD accounts for a much higher share of e-commerce orders in the Middle East than its <40% share (depending on the category) in Turkey.

As a result of the higher usage of COD, return rates are higher in the Middle East than in Turkey. However, comparing the 19% return rate for COD orders with the 8% return rate for CC orders, the former is much lower than I would have guessed. I would have guessed that many more COD orders are placed with the goal of trying a product out before buying it, and that this would produce a much higher return rate. The COD return rate is also trending downwards over time (24% in 2012 to 19% in 2014). This is likely due to the combined efforts of Aramex and leading e-commerce businesses.

Taken together, the share of COD, the return rates for COD orders, and their directional trend suggest that the benefits of accepting COD in the Middle East (more customers) likely outweigh its costs (more returns) for most businesses.

You can read the full report below.