Can ONDC revolutionise the e-commerce space?

ONDC is an initiative of Ministry of Commerce & Industry to help small retailers counter the dominance of ecommerce giants and take e-commerce penetration in consumer purchases from 5% to 25% in 2 years.

But given the challenges of building and sustaining a network of this scale and complexity, can ONDC fulfil its promise to decentralize and democratize e-commerce in India?

Photo Source: Shutterstock

New Delhi, March 28: In order to create an equal opportunity for small players and big companies to compete with each other in India, central government is on a fast-track to spread digitization. The Open Network for Digital Commerce or ONDC, a non-profit initiative by the Department for Promotion of Industries and Internal Trade (DPIIT) of government of India, endeavours to make the digital opportunity available to all, in as equitable a manner as possible.

On April 4, 2023, it was announced that Walmart backed PhonePe has launched Pincode, a new consumer-facing application, which will be a part of India’s ONDC framework. The digital payment brand looks to strengthen its e-commerce forays. The development comes 3 months after Flipkart completed full ownership separation of the payments startup.

ONDC’s rollout started with limited pincodes in Bengaluru in September 2022. Companies such as Paytm, IDFC, Mystore, Craftsvilla and Spice Money are all buyer-side applications. In March 2023, ONDC expanded into mobility as well apart from food, grocery and e-commerce, as the network onboarded Bengaluru based Namma Yatri onto the platform. While 2 cities are in ONDC’s beta stage, 181 are in the alpha stage.

ONDC is not an e-commerce app or a website. It is a virtual platform based on open source methodologies and protocols. Unlike UPI, which merges various banking service under one platform, ONDC will onboard various brands, stakeholders onto its platform. ONDC has three wings i.e. it is a platform for buyers, sellers and logistics.

It has the potential to redefine, revolutionize ecommerce and online shopping space of India.

• ONDC is equivalent to ecommerce like UPI is to digital payments.
• One Mega Ecommerce Platform. One app encompassing all apps.
• Food, merchandise, mobility – all in one META app.
• Any buyer can connect with any seller.
• It claims to give the best deal at the best prices.
• One can compare the prices of different FMCG brands and make a comprehensive analysis.
• Best price competition, eliminating hidden charges and inflated delivery rates.

What is ONDC? When was the initiative launched?

ONDC is an initiative of Ministry of Commerce & Industry to help small retailers counter the dominance of ecommerce giants. The platform was launched on December 31, 2021 and since then, various public and private sector banks have already acquired stakes in ONDC.

From the buyer’s point of view, consumers can potentially discover any seller, product or service by using any ONDC-compatible application or platform. The ONDC network uses open specifications and protocols. As long as businesses are connected to the ONDC open network, buyers and sellers can transact irrespective of the applications they use. This platform independence enables a cab driver, for instance, to be visible to potential customers of all cab hailing apps, even if he is registered on just one.

For small merchants, ONDC aims to digitally empower around 1.2 crore hyperlocal Kirana stores. Small local stores account for 80% of the retail sector in India and most of them aren’t digitally connected. Though in the last three years, COVID-19 pandemic did give a major boost to e-commerce, the benefit of that has largely gone to the big players like Amazon and Walmart’s Flipkart, which control more than 60% of the market.

What can ONDC do for SMEs?

Apart from providing an online platform to small merchants for online business, ONDC also is expected to revolutionize logistics sector in India. While one can discover local stores near them, the consumers will also have an option to choose their own delivery partners. This means that small independent delivery and logistics companies can cater to the needs of the buyer and sellers without facing brand bias. ONDC is expected to digitize the entire value chain, standardize operations, foster inclusion of suppliers, usher in efficiency in logistics, and augment value for consumers.

According to media reports, 20 government and private organizations have confirmed investments worth Rs. 2.55 billion into ONDC. Both public and private sector banks, such as HDFC, Kotak Mahindra, Axis Bank, State Bank of India (SBI), and Punjab National Bank (PNB), have picked up stakes in the platform. Axis Bank, HDFC, SBI, and Kotak Mahindra have acquired a share of 7.84% each, by individually investing Rs. 100 million to purchase 10,00,000 equity shares of face value of Rs. 100 each. In November 2021, PNB was the first bank to announce its plans to buy 9.5% share in ONDC.

While the initiative is laudable, ONDC has a long way to go before it actually fulfils its objectives. The first challenge, of course is to achieve a critical mass of participants on both sides. For that, the platform experience has to be top notch – from selection to purchase to post-purchase issues – so that it attracts more buyers onto the network. Logistics would be another major challenge as the initiative has to deliver simultaneously in big cities as well as the hinterland. Moreover, if the large brands come onto the platform, the challenge of equitability stays. Smaller players will still find it difficult to compete, even if the platform offers them a wide reach.

In a blog post on LinkedIn, T Koshy, CEO, ONDC, admitted that the buyer and seller onboarding was a classic chicken and egg situation (who pulls whom?). To address this, he elaborated the platform’s two-pronged approach:

“First is to work with digitally mature entities to bring them on board at the earliest to prime the network and second is to support digitally handicapped entities to take advantage of this network. The former is to ensure that the network is attractive to a broader cross-section of buyers so that the sellers coming on board have commercial benefits from this network.”

Initial signs are encouraging, as a number of key players have onboarded on to the network. In auto/taxi bookings, for example, ONDC is seeing around 80,000-90,000 transactions a day. By partnering with government departments like agriculture, IT, MSME (micro, small and medium enterprises), CBDT  (Central Board of Direct Taxes), and NABARD (National Bank for Agriculture and Rural Development), ONDC hopes to on-board entities from different backgrounds. HUL (through UShop), Nivea, ITC, YESBank and GlobalLinker, along with start-ups like Digiit, eSamudaay, Gofrugal, GrowthFalcons, Sellerapp and Ushop have hopped onto the bandwagon from the seller side. Buyer applications like Paytm, Phonepe and banks, on the other hand, will be key to achieving the company’s target of onboarding over 900 million buyers in the next few years.