Cash on delivery is a mode of transaction in which the payment for goods is made at the time of delivery of goods and the e-commerce players collect cash from customers on behalf of third party vendors at the time goods are delivered instead of demanding online payment at the time of placing the order. It amounts to 70% of the overall e-commerce business transactions which suggests that the amount of illicit cash in the system is overflowing under the eyes of the government and going unnoticed. In an effort to increase the digital push by the Indian Government, the online payment systems have been gaining popularity, with Unified Payments Interface (UPI) already crossing a 300 million transaction limit. However, even after these efforts, the government has been unable to curb the dominance of cash on delivery payment mode in the economy.

In order to deter the flow of black money in the economy even after the introduction of umpteen number of online portals for payment, Mr.Dharmendra Kumar of India FDI Watch, a grouping of trade associations, unions, farmers groups and small scale industries committed to “building awareness and facilitating grassroots action to prevent the takeover of India’s retail sector by corporations”, filed an RTI application raising a query from RBI to confirm whether the cash-on-delivery payment mode is under the Payments and Settlements Systems Act, 2007? Now, since the Act conspicuously mentions the online and electronic modes of payment, it has not directly mentioned anywhere about cash on delivery as a mode of payment. The RBI in response to the RTI query said that cash on delivery as a mode of payment by online retailers is unauthorized. Although RBI has not issued any circular as to that effect but it has stated in its reply that Cash on Delivery is an unauthorized mode of payment. Some people have made the contention that since it is not explicitly mentioned in the Act does not make it unauthorized. However, apart from the modes of payment mentioned in the Act there is authorization required by the website for any other mode of payment failing which the mode of transaction amounts to an unauthorized method under Section 8 of the Act.

Section 2(i) of the Payments and Settlements Systems Act, 2007 explains that:

(i)                 payment system” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange;

Explanation - For the purposes of this clause, “payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.

According to this section, Cash on delivery has not been identified as a mode of payment legally. Furthermore, section 8 of the Act defines the revocation of authorization. It says that:

8. (1) If a system provider,— 

 (i) contravenes any provisions of this Act, or 

(ii) does not comply with the regulations, or 

(iii) fails to comply with the orders or directions issued by the designated authority, or  

(iv)  operates the payment system contrary to the conditions subject to which the authorization  was issued,

The Reserve Bank may, by order, revoke the authorization given to such system provider under this Act.

The RBI gives an exception to revocation of authorization given to a payment method that is in the interest of the monetary policy of the country.

Under the COD method of payment, many e-commerce market giants collect cash from their customers on behalf of third-party vendors on the delivery of goods.  The RBI Notification dated 24 November, 2009 defines Intermediaries as “Intermediaries would include all entities that collect monies received from customers for payment to merchants using any electronic/online payment mode, for goods and services availed by them and, subsequently, facilitate the transfer of these monies to the merchants in final settlement of the obligations of the paying customers.” This is an unauthorized activity by the RBI which is on the verge of becoming the most commonly used method of payment and failing the attempt of the government in bringing an end to black money circulation in India. The more the website extends its limits for cash on delivery amounts, the more it is likely to attract the circulation of black money as this is the easiest way to convert tainted money by purchasing goods through e-commerce websites. Flipkart has a maximum limit of Rs. 50,000 followed by Amazon which has a limit of Rs. 30,000 followed by Paytm that has a limit of Rs. 1 Lac in which the customer can transfer Rs. 25,000 per month. These are just a few e-commerce giants that contribute to the circulation of black money in the country. A Morgan Stanley report states that India’s online retail business is estimated to grow by more than 1200% to $200 dollars by 2026. It further states that online retail business accounts to 12% of India’s retail market. This brings down to the conclusion that online retail business is going to be the major hub for people to invest their black money in. Thus, the government should make proper arrangements to stop this chain because demonetization will not have its effect in one shot but to focus on every aspect of the economy where there are chances of money being misused.

The RBI Regulation dated 24 November, 2009 provides for Directions for opening and operation of Accounts and settlement of payments for electronic payment transactions involving intermediaries under Section 18 of the Payments and Settlements Systems Act, 2007. It gives the RBI the power to give directions to system providers pertaining to conduct of business relating to payment system if it is in the interest of the public and the management of payment systems.

The banking system and e-commerce companies must work in harmony to ensure that the customer do not feel hesitant in making online payments. Both banks and online product companies organize awareness campaigns regularly for motivating customers for online payments to avoid COD. Anything borne out of unaccounted money also amounts to an unaccounted asset. The Government should limit the amount that can be transacted by introducing new legislations. Presently, Amazon allows cash transaction of up to Rs.30, 000 in a day. Similarly Flipkart has also allowed cash transactions of up to Rs. 50,000.  The Government can make more stringent law with respect to cash limit or reduce to a nominal amount. Also, the exchange and return policy should be more Customer oriented so that they do not have to worry about bearing extra charges for packaging and courier. The online trade practices must comply with the Digital India Campaign and cashless economy idea as online transactions can be paper trailed and is a safer, better way to cope up with money laundering issues in India.