The verdict in three sentences
Cash on delivery (COD) reassures the buyer but wrecks your margins: 15 to 30 % returns or refusals and cash locked up for 3 to 10 days. Prepaid mobile money drops the failure rate to 3 to 8 % and frees the money at T+1. The winning 2026 call: keep COD as a safety net, but incentivise prepaid with a 3 to 5 % discount or free delivery.
COD vs prepaid: the real cost
COD looks free but is expensive in reverse logistics and locked cash. Prepaid carries a small fee (1 to 2 %) far outweighed by the collapse in returns.
| Criterion | Cash on delivery (COD) | Prepaid mobile money |
|---|---|---|
| Share of 2026 orders | 40 to 60 % | 40 to 60 % (rising) |
| Return/refusal rate | 15 to 30 % | 3 to 8 % |
| Cash availability | day+3 to day+10 | T+1 |
| Payment fee | 0 % (but logistics cost) | 1 to 2 % |
| Default risk | high | near zero |
A COD return costs two delivery legs plus restocking: often ₦3,000 to ₦6,000 of pure loss per refused parcel.
Shifting customers to prepaid
A well-calibrated incentive moves 20 to 40 % of COD customers to prepaid. In Nigeria, Paystack settles prepaid at T+1; mobile money fees run 1 to 2 %.
| Prepaid incentive | Effect on the mix | Cost to the merchant |
|---|---|---|
| 3 to 5 % discount | +20 to 40 % prepaid | 3 to 5 % of basket |
| Free delivery | +15 to 30 % prepaid | delivery cost |
| Shipping priority | +10 to 20 % prepaid | near zero |
| Loyalty points | +10 to 15 % prepaid | low |
Even offering a 5 % discount, you save on the 15 to 30 % COD returns: the maths almost always favours prepaid.
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Mini case study
Ngozi, a cosmetics shop in Lagos, does 300 orders/month, average basket ₦15,000, 100 % COD with 25 % refusals. She ships 225 parcels, 75 refused = ~₦375,000 of lost logistics costs (₦5,000/refusal).
She offers a 4 % discount on prepaid (Paystack/mobile money). 35 % of customers switch, with the refusal rate falling to 6 %. Monthly refusals drop from 75 to ~40, saving ~₦175,000 in logistics/month, and cash frees up at T+1 instead of day+7. The discount (4 % on ~105 orders) costs ~₦63,000: net positive of ~₦112,000/month, before counting the unlocked cash.
FAQ
Is COD still unavoidable in 2026? It still accounts for 40 to 60 % of orders, so keep it as a trust option. But actively push prepaid, which is less risky and faster to collect.
What return rate should I expect on COD? Between 15 and 30 % depending on city and category, versus 3 to 8 % prepaid. Each refusal costs ₦3,000 to ₦6,000 in reverse logistics.
What discount incentivises prepaid? A 3 to 5 % discount or free delivery shifts 20 to 40 % of customers. The discount cost stays below the COD losses avoided.
When do I get the money on prepaid? Mobile money / Paystack settlement is typically T+1, versus 3 to 10 days locked up when cash travels via the rider under COD.
Does prepaid scare off wary customers? A minority, yes, which is why you keep COD as backup. But a visible discount and a 3-tap payment reassure most and grow the prepaid share.
Let's talk about your project. We set up the prepaid incentive and keep COD as a net to maximise your margin. WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
