In April, the Department for Promotion of Industry and Internal Trade introduced Open Network For Digital Commerce (ONDC) as an alternative to dominant eCommerce global giants like Amazon and Walmart. It’s a non-profit company that will display products and services from all eCommerce platform participants across the network. For example, if platforms like Flipkart and Amazon sign up for the ONDC platform, a user searching for a Smart TV will be able to see products available on both platforms.
ONDC has received about ₹150 crores in funding. It aims to utilize open specifications and open network protocols for promoting open networks. The beneficiaries will be small, micro, and medium enterprises, hotels, retail stores, restaurants, and delivery partners. It’s a first-of-its-kind initiative that aspires to democratize eCommerce. The platform aims to raise eCommerce penetration to 25% of India’s consumer purchases in the next two years, from the current 8% in a country of 1.35 billion people.
How will ONDC work?
Unlike the current platform-centric digital commerce platforms, ONDC will work on a network-centric model. Buyer and seller-side applications that will be connected to ONDC’s open network will allow transactions between the buyer and seller. All three platforms in the open network will be interconnected: mobility, eCommerce, and delivery. There will be several buyers and provider-side applications at the customer and seller’s end.
The seller-side applications will receive buyers’ requests, used to publish their catalogs, and fulfill buyers’ orders. The buyer site application will help customers to search for products or services from multiple participants. Initially, there will be a single gateway to start the application, but it will be later expanded to more gateways. Through this common and open network, buyers will be able to access all the goods and services provided by multiple sellers on all connected seller-side applications. ONDC is not a platform or application, instead, it’s an open network that eliminates the need for a central intermediary.
Data Security and open-network
For data privacy concerns, ONDC will not store or view transaction data. All the policies regarding the exchange of data will comply with the Information Technology Act, 2000 and efforts will be made to comply with the emerging Personal Data Protection Bill. There will be provisions to protect the User’s Personally Identifiable Information (PII) and seller data critical to trade (i.e., competitive data) from third-party access.
Challenges faced by ONDC
ONDC aims to tap millions of small businesses that lack technical expertise. The government will need to run an awareness campaign to bring small businesses to the eCommerce channels. The Confederation of All India Traders (CAIT), a group representing 80 million small businesses, said that such businesses lack resources and order volumes to match the discounts offered by big eCommerce marketplaces such as Amazon and Flipkart. Another challenge would be establishing technology and easy-to-navigate platforms that lure merchants and customers.
India has led various population-scale initiatives to democratize markets — Unified Payment Interface (UPI) or Goods and Services Tax Network (GSTN) or the Unique Identification Authority of India (UIDAI). The National Payments Corporation of India developed UPI to simplify mobile banking and promote digital payments. NCPI offers a backend solution on which other platforms could offer UPI and a front-end solution as well. Various Platforms such as Phonepe, GooglePay, and Paytm offer transactions via UPI where every transaction is clocked twice – by remitting and receiving bank. ONDC is being called the ‘UPI of eCommerce.’
Dr. Hitesh Bhatt, director at Retailers Association of India, said, “The open network for digital commerce is a market-led initiative aimed at enabling interoperability in digital commerce based on the principles of openness. It aims to enable unbundling, democratizing, and unlocking value for all parts of digital commerce” at the ONDC Masterclass held in December 2021.
Who will benefit from ONDC?
Small businesses and traders have always found it difficult to match eCommerce platforms’ deals and discounts. This platform aims to eliminate digital monopolies and help SMBs, local sellers, and startups sell online. The Competition Commission of India (CCI) has launched multiple investigations against Amazon and Walmart-backed Flipkart regarding complaints that these retailers promote alpha sellers. The Indian government is creating a level playing field with ONDC that will help businesses of all sizes to display and sell their products and services.
Will ONDC be successful?
ONDC will follow a network-centric model where sellers and customers will be transacting through an open network regardless of the application or platform they use. What’s unclear in the ONDC strategy paper is how businesses or Kirana stores that haven’t started selling online will be able to directly benefit from the open network. Since the seller-side applications will be registering to participate in the open network, SMBs will still need to register as sellers with eCommerce platforms to sell. ONDC will bring a power shift in the eCommerce industry, but its successful execution depends on how efficiently government can make digital interactions easier. Unlike UPI, which requires little digital interaction, Kirana stores and local supermarkets will have to familiarize themselves with digital platforms, which will take time.