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ONDC

What is ONDC? | Working and Future Explained

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Remember how UPI revolutionised the digital payments landscape in India? 

Well, brace yourself for another game-changing initiative by the Indian government – the Open Network for Digital Commerce (ONDC) platform.

Imagine an online marketplace where sellers, big or small, have an equal chance to thrive, and buyers have an array of choices at their fingertips. That’s precisely what ONDC aims to achieve by democratising e-commerce and creating a level playing field for all players.

As the e-commerce sector expands rapidly with its “anything-anywhere-anytime” shopping concept, India’s digital commerce market is forecasted to reach US$71.29 billion in 2023. The growth can be up to 13.9% over the next five years.

Recognising this remarkable surge in the e-commerce sector,  ONDC serves as the government’s strategic move to promote fair competition and create a level playing field for all players in the Indian e-commerce industry.

Without any further ado, let’s analyse ONDC thoroughly by exploring its working, benefits and impact on India’s online shopping industry. We will also talk about its future aims, allowing you to tap its full potential, whether you’re an online shopper or a seller aiming to thrive in the digital marketplace. 

How ONDC Works

What is ONDC?

Open Network for Digital Commerce (ONDC) is a private non-profit company established by the Government of India’s Department for Promotion of Industry and Internal Trade (DPIIT). It was officially incorporated on 31 December 2022 with an initial investment from the Quality Council of India and Protean eGov Technologies Limited (formerly NSDL e-Governance Infrastructure Limited).

Most people are confusing it as an application, an intermediary, or software, but ONDC is a set of specifications designed to facilitate open network interactions and connections between shoppers, technology platforms, and retailers.

Now, some might assume ONDC to be like UPI offering free services then it’s important to note that ONDC may charge a nominal fee (around 1% of transaction value) from sellers for maintenance and development of the network.

To test its capabilities and effectiveness, ONDC launched its pilot phase on 29 April 2022 in five cities: New Delhi, Bengaluru, Bhopal, Shillong, and Coimbatore. The goal of ONDC is to onboard a staggering 3 crore sellers and 30 crore shoppers onto the network by 2024, thereby significantly expanding the reach and impact of open e-commerce in India.

How does ONDC work?

ONDC, as the name implies, is an open network for all the players who sell or enable selling in an e-commerce setup (i.e.) a shopping platform, sellers, logistic partner and technology service provider. This network ensures that no single entity has complete control over the entire buyer’s purchasing journey. Consequently, consumers have the freedom to choose from a wide range of options available on the platform.

ONDC MechanismTo better comprehend the concept, let’s consider an example. This open network is accessible to both buyers and sellers through various buyer apps. When a seller registers on any buyer app, they automatically become part of the network. As a result, when a consumer searches for a specific product, the app displays all the registered sellers nearby, including local Kirana stores. This empowers the buyer to decide whether they want to purchase from a nearby Kirana store or a renowned supplier.

The same goes with delivery partners, the ONDC allows the buyers to select the delivery partner of their preference. This flexibility ensures that the buyer can select a delivery partner that meets their preferences.

By offering this facility, the dominance of major e-commerce giants will diminish, allowing micro, small, and medium enterprises, as well as small traders, to actively participate in online marketplaces.

ONDC Advisory Council

The advisory council of ONDC is the body to oversee the implementation of the ONDC across the country. Its members were carefully chosen based on their extensive expertise in various fields such as technology, finance, and commerce. The distinguished individuals who comprise the council include:

Nandan Nilekani – Co-founder of Infosys.

Anjali Bansal – Founder of Avaana Capital.

R S Sharma – CEO of the National Health Authority.

Adil Zainulbhai – Chairman of the Quality Council of India and Capacity Building Commission.

Arvind Gupta – Co-founder and Head of the Digital India Foundation.

Dilip Asbe – MD and CEO at the National Payments Corporation of India (NPCI).

Suresh Sethi – MD and CEO at the National Securities Depository Limited (NSDL).

Praveen Khandelwal – Secretary-General of the Confederation of All India Traders.

Kumar Rajagopalan – CEO of the Retailers Association of India.

Anil Agrawal (Convener of the ONDC Advisory Council) – Additional Secretary from the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry.

What ONDC aims to achieve?

With this initiative, the Indian government aims to achieve the following goals and revolutionize the e-commerce landscape of India:

  • Ensure all businesses regardless of their size, location, or digital proficiency, can easily participate in the digital marketplace.
  • Formalisation and democratisation of e-commerce.
  • Make a single open network for all the sellers and buyers in e-commerce like UPI in digital payments.
  • Enhance business efficiency in India by reducing various cost overheads such as acquisition costs, digital presence costs, and inventory costs across all businesses.
  • Economic development and livelihood creation opportunities across the digital commerce value chain including, logistics, packaging and delivery.
  • Expand the digital commerce landscape in India.
  • Enable increased trade of locally manufactured goods. 

Challenges in the E-commerce sector

The current e-commerce industry faces several loopholes such as high commission rates, lack of transparency, and data privacy issues. These problems have made it difficult for small businesses to compete with large online market players. Let’s explore them one by one:

  • The current platform-centric nature of e-commerce makes it difficult for the masses to fully utilise its potential.
  • A single entity has full control over managing all operations in the e-commerce value chain.
  • Sellers face challenges including high margin costs and the need to maintain a presence on multiple platforms.
  • Buyers and sellers can only transact if they are part of the same platform
  • The rise of monopolies has created barriers to entry for the population-scale adoption of e-commerce. 

Why ONDC is important for India?

Despite the high internet speeds and widespread smartphone usage, the majority of participants in e-commerce are unable to reap the full benefits of this digital revolution.

It is worth noting that India possesses the third largest shopper base globally, with 140 million e-retail shoppers in the year 2020 alone, trailing only behind the markets of China and the USA. However, our penetration of e-commerce stands at a mere 4.3%.

ONDC - indian e commerce market penetration compared to other countries Stats of online retail vs total retail market

 

Even the covid 19 pandemic exposed the critical shortcomings of the Indian digital commerce ecosystem where most parts of the retail chain were found to be digitally absent.

In much the same manner as the UPI ingeniously tapped into the rugged cash-centric market of India, resulting in a noteworthy surge of Indians adopting contactless payment modes. We can expect similar results from ONDC in revolutionising the digital marketplace. By extension, the ONDC possesses the potential to bridge the gaps prevalent within the e-commerce sector, ultimately facilitating its expansion on a nationwide scale.

Future of ONGC

ONDC has set the below-mentioned goals to achieve within the span of the next 5 years:

  • Rs 3.75 lakh crore additional gross merchandising value 
  • 90 crore buyers on the network 
  • 12 lakh sellers on the network 
  • 7.30 crore additional annual purchases enabled by the network
  • Enhanced pincode coverage 

Impact of ONDC on FinTech 

With the diversification of the online market, a plethora of avenues are set to unfold for FinTech enterprises fueled by an expected rise in demand for B2B payment gateways to support retail payments. As the frequency of UPI transactions is projected to soar, new FinTech startups will find themselves with an equitable opportunity to tap into previously untapped markets.

Moreover, conducting transactions on an open network will not only enhance payment visibility but also streamline the time-consuming process of routine audits. As a result, numerous SME Neo banks and FinTech companies are eager to onboard the ONDC network. Undoubtedly, the advent of this open network is going to change the panorama of digital e-commerce transactions in the coming years.

Impact of ONDC on Banks

Renowned banks such as PNB, SBI, Kotak, Axis, ICICI, and others not only showcased their interest in the ONDC network but have also made substantial investments to forge a competitive e-commerce marketplace. Anticipated to leverage the network’s infrastructure, these banks aim to facilitate credit provision to suppliers, sellers, and other participants within the network. 

Furthermore, even small banks with no physical presence in the market will reap the benefits of ONDC, expanding their outreach to tier 2 cities and villages. This expansion of e-banking is set to foster awareness among local retail sellers, shedding light on important financial solutions like working capital financing, term loans, and merchant settlement transactions, ultimately promoting financial inclusivity. 

Banks already equipped with cash flow-based credit approval systems for the Open Credit Enablement Network (OCEN) are also keen on extending these services to the ONDC platform.

Impact of ONDC on Digital India

In India, the advent of ONDC promises a transformation of the digital ecosystem, reshaping its very landscape. As more sellers join the platform, there will be an increase in demand for revenue-based financing, working capital loans and supply chain financing solutions. Furthermore, the introduction of ‘Buy Now Pay Later’ solutions will serve as a catalyst for retail lending. Empowering customers to make credit-based purchases, this feature will assist thin-file borrowers in establishing their credit history.

Ultimately, this government initiative aims to dismantle the hegemony of a handful of dominant e-commerce platforms, fostering a more equitable and competitive market.

If you like this blog, you will surely enjoy reading: Business model of PAYTM

FAQs

What is the ONDC?

The Open Network for Digital Commerce (ONDC) is a non-profit company established by the Government of India’s Department for Promotion of Industry and Internal Trade (DPIIT). It was created on December 31, 2022, with an initial investment from the Quality Council of India and Protean eGov Technologies Limited (formerly NSDL e-Governance Infrastructure Limited).

Which companies are using ONDC in India?

The major companies that are using ONDC in India include Microsoft, Meesho, Paytm, and Dunzo.

Is ONDC government or private?

ONDC is a private non-profit company established by the Government of India’s Department for Promotion of Industry and Internal Trade (DPIIT)

How can I join ONDC in India?

To join ONDC in India you can visit the ONDC website and register yourself there as instructed on the website.

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