New Delhi, Jul 24: Cash-on-delivery (CoD), which accounts for almost half the e-commerce purchases in the country, could be a regulatory grey area, going by the Reserve Bank of India’s reply to a Right to Information (RTI) query.
The method involves Flipkart, Amazon and other marketplaces collecting cash from customers on behalf of third-party vendors at the time the goods are delivered.
“Aggregators/payment intermediaries like Amazon and Flipkart are not authorised under Section 8 of the PSS (Payments and Settlements Systems) Act, 2007,” the apex bank said in its response to the RTI application.
However, some legal experts said the rules don’t necessarily invalidate cash-on-delivery. The Act mentions electronic and online payment, but doesn’t make explicit mention of money received through the cash-on-delivery route.
The query had asked RBI to “confirm if cash-on-delivery payment collection and disbursement to e-commerce merchants by e-commerce marketplaces such as Flipkart and Amazon (are) covered under the definition of payment system and system provider of the Payments and Settlements Systems Act, 2007, No. 51 of 2007 by acting as intermediaries and system providers. If yes, are these payment systems authorised as per Section 8 of the said Act?” To be sure, the central bank hasn’t laid down the law with respect to such transactions.
“RBI has not issued any specific instruction in this regard,” RBI said in its reply.
It elaborated on the definition of intermediaries in the Act: “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 definition was included in RBI circular DPSS.CO.PD.No.1102/02.14.08/2009-10 of November 24, 2009, on “directions for opening and operation of accounts and settlement of payments for electronic payment transactions involving intermediaries,” the central bank said.
Flipkart introduced cash-on-delivery in 2010 to take e-commerce to the masses as online transactions were not mainstream at that time and to combat a reluctance to use credit cards. Experts said this was one of the reasons for e-commerce gaining a foothold in India. Flipkart and Amazon declined to comment.
he RTI application was filed by Dharmendra Kumar of India FDI Watch, a grouping of trade associations, unions, farmers’ groups and small-scale industries working toward “building awareness and facilitating grassroots action to prevent the takeover of India’s retail sector by corporations”. A lawyer said the system wasn’t unlawful.
“This by no means makes the cash-on-delivery model illegal or unauthorised,” said Abhishek A Rastogi, partner at Khaitan & Co. “The Payment and Settlement Systems Act, 2007 should apply to cash-on-delivery transactions by e-commerce operators.”
The legislation seeks to regulate payment systems, which are defined as anything that enables such transactions between payer and beneficiary, he said.
“It cannot be said that collection of cash by e-commerce operators is unauthorised,” Rastogi said. “It (COD) can be done through a contractual arrangement between e-commerce operators and merchants. These will be regulated by the Payment and Settlement Systems Act, 2007, rules and regulations framed thereunder.”
Kumar, who filed the RTI, didn’t agree. “If e-commerce firms have been collecting cash-on-delivery on behalf of merchants without RBI’s authorisation, there must be a grey area in the law they are exploiting,” he said. “The RBI should have a system in place to ensure such things do not happen.”
Some lawyers said there is potential for punishment. “The circular came out eight years ago and any firm found in violation of it can be penalised,” said Chanakya Basa, an independent corporate lawyer. A group representing online sellers pointed out that the process of cash-on-delivery isn’t a simple one and involves multiple steps.
“There is a systemic risk involved in collection of cash on behalf of sellers,” said a spokesperson of the All India Online Vendors’ Association (AIOVA), which has 3,500 sellers who sell on various e-commerce websites as its member.