Amazon may be testing drones to drop off packages but in India, the world's biggest ecommerce company is looking to try out something decidedly low-tech that could give it an unbeatable edge on deliveries.
Its secret weapon? The postman. Amazon already sends packages by India Post but now it wants to use the channel to collect payments from recipients as well, using the cash-on-delivery model. Amazon has started a pilot with India Post to test this system, which could help it reach deep into India's hinterland, according to two people familiar with the matter.
A partnership between India Post and Amazon would intensify competition in the still-nascent but burgeoning ecommerce industry if the pilot proves to be a success.
Amazon would gain reach while India Post would benefit from the company's aggressive growth plans. India Post has more than 150,000 post offices in India, out of which 89% are in rural areas. "We are trying to add capabilities like cash on delivery and reverse logistics. Consumers don't want to make an upfront payment. We are developing software to start the cash-on-delivery service with Amazon," said a senior India Post official who did not want to be identified.
India's 150-year-old postal service, hurting from the country's telecom revolution and increasing adoption of email, has been seeking to reinvent itself, including bidding for banking services. It has applied to RBI for a banking licence, seeking to leverage its wide reach.
India Post has applied to the Reserve Bank of India for a banking licence, seeking to leverage its wide reach. The central bank is expected to announce the grant of bank licences in January. The Amazon plan, if it goes through, will fit in nicely with the postal department's plans. India Post aims to spend about Rs 100 crore in the next few years to set up warehouses for ecommerce packages.
Cash on delivery accounts for two-thirds of ecommerce transactions. The percentage is even higher in smaller towns. To be sure, cash on delivery is riddled with challenges in India. Customers sometimes refuse to accept delivery or aren't available at the address given to make payments.
Theft and fraud risks are also higher. Amazon is testing the cashon-delivery model on India Post's Speed Post network, which is faster than the E-Express Parcel service it offers, according to the people cited above. The Amazon spokesperson didn't answer specific queries on the matter. "We continually look for opportunities that will enable us to reach our customers in the remotest parts of India and offer them a convenient, trustworthy and reliable shopping experience," the company spokesperson said in an emailed response.
Amazon India functions as a market place for other vendors as existing foreign direct investment rules don't allow it to sell to Indian consumers directly. However, if and when the industry opens up, a wide distribution network would be an advantage over local rival Flipkart. "India Post by far has the largest distribution network and no private courier company can match it.
Ecommerce is going to truly take off in the next two years and Amazon will be geared up for the opportunity," said Arvind Singhal, chairman of consultancy Technopak Advisors. However, Flipkart also said it's considering using postmen to offer cash on delivery. "We use India Post for delivery of prepaid orders with Flipkart-.com," a spokesperson said. "We are currently evaluating the possibility of working on a feasible cash-on-delivery mechanism with them." Amazon has been growing aggressively since CEO Jeff Bezos founded it in 1995. The company reported sales of $17.09 billion in the third quarter this year, up 24% from a year earlier.
Bezos unveiled the futuristic plan to use drones to drop packages during a television programme on Sunday. The so-called octocopters can carry 5-pound packages within a 10-mile radius of an Amazon fulfillment centre in 30 minutes, Bloomberg reported. The company may start using the drones in the next five years depending on approval by the aviation regulator, Bezos said.