ONDC the game changer in the eCommerce industry

ONDC is a term that stands for Open Network for Digital Commerce. Consider it a network that will bring together a diverse range of buyers and sellers in a single digital space. But doesn't this sound like Amazon or Flipkart? No, not at all, and here's why.

ONDC is not a platform. It is a decentralized, interoperable network. Okay, too many big words. Essentially, it is a connection of multiple buyers and sellers who can connect with one another and offer a greater variety of options, likely more than Amazon and Flipkart or similar sites. On the pricing front, while ONDC will not prescribe any particular fees to be charged by participants in the network, competition would then ensure that commissions are significantly less than current e-commerce monopolies.

So, how exactly does ONDC work?

As I previously stated, ONDC is a network of buyers and sellers. Buyers (people like you and me) are current users of payment apps and tech platforms. For example, if you use PhonePe, and PayTM, you automatically become a buyer app user.

Sellers (merchants) are onboarded onto seller applications by companies that either digitize in the business of digitizing commercial activities (e.g. eSamudaay) or even have end-to-end order fulfillment technical know-how. A seller app's goal is to onboard retailers, consumer-packaged direct-to-consumer (D2C) brands, and goods (CPG) brands to ONDC1.

According to reports, ONDC currently charges sellers a 3% referral commission to find buyers. This really is 7 to 10 times less than the current 23% - 28%2 online seller commission rates. Furthermore, the merchants do not have to spend money on customer acquisition or marketing because the buyer apps already have regular customers who use them.

What is the current situation with ONDC?

ONDC is now available in five cities: Delhi NCR, Bhopal, Bengaluru, Coimbatore, and Shillong. Currently, the operations are focused on retail and restaurants, as well as facilitating real-time transactions. The open network will eventually expand to other categories such as travel and mobility.

ONDC will be expanded to 100 cities and towns across India by October 2022, based on the pilot exercise and after the network stabilizes. The goal is to accommodate 30 million online sellers and 10 million online merchants.

Who are the main players in ONDC?

Twenty government and private organizations have agreed to invest INR 2.55 billion (US$ 33.34 million). Several both public and private banks, including Kotak Mahindra HDFC, Axis Bank, and the State Bank of India, are involved (SBI).

Around 80 companies are working to integrate market participants with the ONDC platform. ONDC is being integrated by startups such as hyperlocal delivery startup Dunzo, Flipkart's logistics arm Ekart Logistics, and payment service provider PhonePe.

"Anyone with a monopoly will pretend to be in fierce competition."

When a platform grows in size, buyers and sellers experience concentration risk, which can lead to a single point of failure. Power concentration results in deliberate exclusions, discretionary behavior, and predatory pricing. They no longer function as a platform and instead become market monopolists. This means that smaller and medium-sized sellers will lose the ability to participate on their own terms. In some cases, a seller must pay a high price to migrate or sell on various platforms, such as their own.  This includes maintaining separate infrastructure, increasing costs, and restricting participation. Solving these issues for a country with a large population necessitates a multifaceted approach.

In technical terms, a shift from an operator/platform-centric model to a platform-driven model to an interoperable decentralized network was required.

What this means for small and medium-sized businesses is:

• Boost will join the ONDC network.
• Improved discoverability6 and trust, regardless of platforms
• Buyer and seller autonomy

The concept of open network commerce is not limited to the retail sector; it can also be applied to other types of digital commerce such as mobility, logistics, travel food delivery, and other products and services7.

So that's the motivation behind establishing ONDC!

What awaits us?

First, the ONDC aims to increase e-commerce penetration in India to 25% of consumer purchases in the next two years, up from nearly 8% now in a country of 1.35 billion people.

Second, it hopes to enroll 900 million buyers as well as 1.2 million sellers on the network share over the next five years, with a gross merchandise value of $48 billion.

Third, it hopes to entice logistics companies and others who are able to work with sellers to deliver customers their goods. Small merchants as well as rural consumers should be prioritized, with apps available in Indian languages.

Fourth, ONDC's primary goal is to reach millions of small businesses, many of which lack technical knowledge, so the government will need to conduct extensive public awareness campaigns.

Fifth, the Competition Commission of India's role would be critical in ONDC's success because smaller businesses with low volumes lack the funds to compete with heavyweights such as Amazon and Flipkart. Only when big players are effectively stopped from engaging in anti-competitive practices can they be integrated and sustained.

Sixth, the government must ensure that ONDC complies with the Information Technology Act of 2000 as well as the pending Personal Data Protection Bill.

Conclusion

ONDC offers a technological platform to help India achieve its goal of becoming a digitally savvy and wired middle-income economy. It provides a critical global template for leveraging technology for and as a public good at the population scale in an equitable and inclusive manner.