The Open Network for Digital Commerce, also known as ONDC, is a network built on an open protocol that will allow different selling and purchasing applications like Flipkart, Dunzo, Jio, and Paytm, to connect to the network. The consumer would then have access to the products and services through any of the connected apps.
Another way to think of ONDC is as a UPI for e-commerce. With UPI, several apps can communicate with one another easily, so you might use Gpay to scan a friend’s Paytm QR code and send them money or vice versa. Also, wouldn’t it be incredible if you signed in to your Amazon app and purchased a product from a merchant listed on Flipkart?
I know you must be thinking, how on earth is that even possible?
To understand ONDC, let us look at the history and why the Government of India initiated it. India’s first interaction with e-commerce started with IRCTC, launching the online ticket booking system back in the year 2002. Following the suite, Myntra and Yatra launched their respective websites for users to book flights and hotels.
The breakthrough came in the year 2007 with Flipkart launching its shopping portal, attracting users with its deep discounted model and excellent customer service, leaving a lasting impression on Indian online shoppers. After 6 years, Amazon entered the Indian market in the year 2013. Since then, e-commerce in India has been dominated by key players, notably Flipkart, and now joined by Walmart, Amazon, Zomato, etc.
Now the question is, what about other players in the market?
They too have a unique set of buyers and suppliers. Furthermore, many vendors have not yet entered the e-commerce market. According to a report, in India, around 1.2 crores “Kirana” stores, which are basically the hyperlocal neighborhood provision stores, account for 80% of the retail sector, but most of these stores are digitally excluded. Some, which are in the remotest village, too have their own set of products and services which cannot be accessed due to the unavailability of any medium to access and exchange. Hence those products and services are exclusively available offline within their geographical limitations.
The main drawbacks are that users need to browse multiple platforms to find the goods or services they want, as each platform will only offer a subset of selective goods and services, and they will have fewer options unless they scroll through numerous apps and websites.
Further, the e-commerce penetration in India is much lower than in countries like China or South Korea. The Gross Merchandising Value (GMV) for the digital commerce retail market in India was ₹2.85 Lakh Crores (US$ 38 billion) in 2020, which is only 4.3% of the total retail GMV in India and well below the e-retail penetration in countries like China (25%), South Korea (26%), or UK (23%).
In order to put an end to dominance and provide a level playing field to small stores, and enhance user experience, ONDC is required.
How will ONDC help?
In order to identify the challenges, ONDC focuses on three key use cases, including
- Discoverability: This allows you to use a shared library to find products across several platforms.
- Interoperability: Different services can be accomplished by combining multiple platforms, such as a product with delivery, services with payments, etc.
- Price comparison: This allows you to compare pricing across multiple websites, such as ticket prices across several ticketing platforms.
- Reduce entry barriers to increasing competition and, as a result, market growth.
- All companies, including incumbents, will see lower channel costs as a result of the democratization of the digital commerce sector.
- Common seller registry will help expand the seller base multi-fold for all players.
- Vendors will be motivated to offer better customer service if they have the opportunity to enhance their reputation.
- Similar to UPI, networking effects tend to create positive growth over time.
- Incumbents joining the network will promote rapid adoption.
How will it work?
ONDC will play three major roles:
Growth of the network using cutting-edge technology and enabling broad ecosystem engagement, managing and maintaining the network, establishing standards, guidelines, and a code of behavior for users, as well as providing services like registration, grievance redress, and other services.
Value for stakeholders:
- Consumers: An incredible way to research and find the greatest products and services across platforms and vendors.
- E-commerce Companies: Gets a broad outreach with government support to reach a huge user footprint and increase their competitiveness.
- Small Businesses: Enables them to market their products and services nationwide without being tied to a particular platform.
- Government: To accomplish the aim of digitally connecting India and considerably strengthening the economy.
It needs a lot of effort to balance different interests while also connecting them all. As the platform’s trustworthiness is important in deciding where to buy from, verifying the quality of service will also be a key consideration. However, with the help of the government and a very astute think tank, these challenges may be overcome.
ONDC has already launched a trial version in five cities: Delhi, Bengaluru, Coimbatore, Shillong, and Bhopal. As for seller apps, it has enlisted eSamudaay (a software provider that supports the digitization of small enterprises), Gofugal and Digiit (ERP players), SellerApp and Growth Falcon (a digital marketing firm), and Digiit. Paytm will serve as the buying app. In total, 150 sellers will be added by ONDC to the test program in the five cities.