Since the inception of the Unified Payment Interface (UPI) for digital payments, users no longer need to download multiple payment applications. Using one payment gateway network, money can be easily transferred to different accounts through varied gateways, keeping it smooth and hassle free. Taking this concept further, the union government recently introduced the Open Network for Digital Commerce, or ONDC, to encourage digital payments for purchase of goods and services while making the process convenient, easy and smooth for both buyers and sellers.
It is argued that the ONDC will be the UPI of e-commerce and shift the paradigm of e-markets.
What is ONDC
According to the ONDC Strategy Paper, it is a first-of-its-kind initiative and is built upon an open network developed on open protocols. ONDC is a network that enables location-aware, local e-commerce stores across industries to be discovered and engaged by any network-enabled applications.
It is neither a super aggregator app nor a hosting platform. All existing e-commerce apps and platforms can voluntarily choose to adopt and be a part of the ONDC network. In addition, the responsibility for onboarding of sellers and buyers and the management of the end-to-end order lifecycle will also continue to reside with the network-enabled applications.
India is emerging as a fast-growing economy which in the next 10-15 years is expected to be among the top three economies of the world. Being the second most populous country, India provides a huge field for market players to increase their consumer database and hence, one of the preferred destinations to do business.
The COVID pandemic saw a big spurt in India’s digital commerce wherein India has the third-largest online shopper base globally, with 14 crore e-retail shoppers in 2020, only behind China and the US. But the pandemic also showcased the shortcomings India is facing where most hyperlocal market players were digitally absent.
During the pandemic, the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industries, conducted a study to understand the impact of the pandemic on small sellers and the functioning of hyperlocal supply chains. It was found that there was a huge disconnect between the scale of online demand and the ability of the local retail ecosystem to participate.
ONDC was conceptualized by DPIIT with the primary aim to end the digital monopoly of the few big e-commerce companies. The Quality Council of India has been given responsibility to integrate e-commerce platforms with open networks. ONDC has now been launched as a test run in six cities including Delhi-NCR, Shillong, Bhopal, Bangalore and Coimbatore.
How ONDC works
If buyer A wants to purchase, say, headphones, they will search on any of the current e-commerce apps. Looking for attractive deals, buyer A surfs the different apps. But having to switch from one app to another for better deals or specifications can become time consuming. Moreover, to monopolise the market, business giants such as Flipkart or Amazon, who control 60% of the e-commerce space in India, give huge discounts on expensive products. They also accord priority to some associated brands or a particular brand is made available only on their app.
ONDC is meant to break this chain. When a buyer uses ONDC to open App 1, say Flipkart, and searches say for headphones, they will not only receive options of sellers on that particular app but also the options of headphones available with the other apps and stores nearby. This will allow the consumer to compare prices, qualities, availability, discounts etc.
Further. on the said app, if the buyer opts for headphones which are sold by Seller X but due to certain reasons, the delivery agents of App 1 are not available in the area of delivery, either the buyer or seller can opt for the delivery services facilitated by other apps like Dunzo, Porter etc., through App 1.
With ONDC, one app offers all kinds of services and benefits to both sellers and buyers. It is voluntary and open to all the segments of business. In layman’s language, ONDC plays the role of weekly markets which are a one stop shopping centre, catering to all kind of goods and services.
ONDC is neither an e-commerce app nor an intermediary or regulator. It is an open-source network, which does not require buyer and seller to use the same platform/app to do a business transaction. Instead, it is a network-centric model where, so long as platforms/app are connected to this open network, buyers and sellers can transact irrespective of the platforms/app they use.
Therefore, it is also called UPI of e-commerce.
The above figure shows a paradigm shift from an operator-driven monolithic platform-centric model, to a facilitator-driven, interoperable decentralized network. The use of this new model will:
- Encourage widespread participation; especially that of small and medium enterprises including hyperlocal merchants (Kirana) from all across the country
- Enable flow of value more than the store of value i.e., shift from ‘central platforms storing and exchanging value’ to a ‘decentralized network of interconnected ecosystem actors orchestrating the flow of value’
- Address discoverability and trust, agnostic of a platform and across platforms
- Unify the siloed platforms to overcome the challenges inherent in the platform model instead of pursuing the notion of one universal platform or platform of platforms
- Enable autonomy of buyers and sellers
- Align incentives of the network, platform, and end-users so that the collective succeeds only through the success of the end-users
Objectives of establishing ONDC:
- Be scale efficient and enable population-scale adoption
- Promote interoperability among participant’s platforms and software applications to create an open, inclusive, and competitive marketplace
- Establish public digital infrastructure on which the industry participants can develop and implement a variety of services
- Make digital commerce small-business friendly
- Pave the way to unlock innovation for reimagining digital commerce
- Ensure rapid digitalization of MSMEs and adoption of digital commerce by both rural and urban consumers with equal ease and convenience
Targets ONDC aspires to achieve
ONDC is striving for national-level adoption of the network with a set of clearly defined milestones:
- Make ONDC network onboard buyers and sellers in every pin code of India
- Bring 300 million shoppers onto ONDC network via diverse buyer side platforms by end of 2024
- Bring 30 million sellers and seller catalogues onto the ONDC network via hundreds of seller side platforms by end of 2024
- ONDC must generate an average of 300 million orders per month by end of 2024
Like any other new initiative, ONDC has been analysed by experts and a few concerns have been voiced. The foremost being since registration to ONDC is voluntary, its success can only be measured by the number of e-commerce platforms registering on it. If major e-commerce players refrain from registering, the main objective behind the initiative might not happen.
Moreover, there is a need to create more awareness and technical support to help local vendors and small businesses register themselves. Issues relating to payment can also arise when a consumer adds other services in a single transaction.
Another concern is that if in case a consumer faces any issue regarding the transaction or the quality of products or services delivered, whose liability will it be? As it remains unclear as to how various e-commerce laws will apply to ONDC, and how ONDC fits into the legal landscape of e-commerce in India, the issue of liability of ONDC remains unanswered.