How ONDC is changing India’s digital commerce game

With more businesses big and small aligning with the Open Network for Digital Commerce, e-commerce in India as we know it is about to change forever

In December last year, Meta joined forces with the Open Network for Digital Commerce (ONDC) to enable and educate small business providers about the new open protocol and empower them to sell online. Internet giant Google too has collaborated with ONDC for various initiatives.

A local retailer in a small town of Assam is preparing to offer hyperlocal deliveries. Sone ki Rasoi in Okhla Delhi is online and discoverable to thousands of customers in his area. PVR Foods from Coimbatore was able to expand operations to Tirupur and Virudhunagar. They are among millions of regional and local retail businesses that have been able to get the digital infrastructure advantage hitherto available to the big businesses. And this is thanks to ONDC.

Incorporated on 31 December 2021, Open Network for Digital Commerce (ONDC) is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, Government of India.

After successful pilots in Bengaluru, ONDC was made mainstream in January 2023, when the network registered 1281 transactions in a month. In January this year, the network recorded 5.7 million purchases.

From offering just groceries, the network today caters to several categories including retail and B2B transactions (Food & beverage, grocery, home & décor, electronics, fashion, beauty & personal care, health & wellness, agricultural products), ride-hailing, metro booking and financial services among others.

The network is unbundled, open and transparent, and has the potential to completely change the way digital commerce is carried out in the country. A Redseer Strategy Consultants report expects ONDC to potentially generate $250-300 billion in GMV (gross merchandise value) by 2030.

It’s unbundled

ONDC seeks to democratize digital commerce in the country. What it simply means is that it seeks to decentralize online commerce, which is currently centralized and monopolized by a handful of players—the big horizontal and vertical marketplaces that dictate the rules, the payment terms and the trading terms. The heavy commissions and the closed loop mean that a seller wanting to sell on multiple platforms needs to get onboarded onto 10 different platforms. Consumers on that platform can only buy from there. This is a closed ecosystem confined to that platform.

“Whereas if they are using a standardized open protocol, a seller can make his catalogue on one buyer application and still be discoverable to customers across all the applications on the ONDC network,” said T Koshy, MD & CEO of ONDC.

However, it is not a crusade against existing players. As Nandan Nilekani, Chairman of Infosys and part of the ONDC Advisory Council explained to CNBCTV18, “This is not about being anti-Amazon or Flipkart. That was very important to realise, this is not something which we think will kill the large incumbents. It’s a new construct, which could also create opportunities for both large companies and small companies.”

It’s open

The biggest drawback of the current ecommerce ecosystem is the lack of transparency between platform participants. Currently, the entire data lies in the hands of the platform with limited visibility to both parties.

Neither the sellers really know who their buyers are, nor the buyers know their sellers.

“ONDC enables sellers to get buyers’ data unlike what is happening in most cases today,” explained Kumar Rajagopalan, Chief Executive Officer of RAI, who is also part of the ONDC Advisory Council.

ONDC provides multiple platforms that connect the sellers and consumers, decentralizing the digital commerce ecosystem, and fostering open and transparent dealings.

Here, consumers know who their sellers are and interact directly with them. Also, the sellers know their buyers and are custodians of their data.

“As a consumer, I’m now able to be in touch with my seller 24X7. That’s a big change,” added the RAI CEO.

This is possible because the ONDC is built on the Beckn Protocols. Created by the Beckn Foundation, this is an open and interoperable protocol that enables location-aware local commerce across industries.

However, “ONDC is not an application/platform and is neither a central intermediary. It is an open network aimed to eliminate the need for a central intermediary and is aimed to expand the reach of e-commerce,” explained Google engineer Paras Mamgain on a Medium blog.

This means that the onus of providing the right products and services lies with the sellers as ONDC is simply a network facilitator. Often, critics and naysayers raise the issue of consumer rights protection in the new scheme of things questioning how ONDC seeks to address grievance redressal and liability.

However, Koshy explained that since ONDC is a protocol and not an intermediary like the marketplaces as per the existing laws of the land, the onus is on the sellers. Sellers who can provide great service and products will be able to gain trust. And this is not much different than what’s happening even today. “Sellers are the ones who bear the brunt of any dispute or differential taxation when they sell online irrespective of where they sell,” the RAI CEO said adding that the responsibility lies with the seller and not the platform.

It’s Inclusive

The purview of ONDC far exceeds retail to encompass all forms of commerce including mobility, insurance, finance and ride-hailing among others.

It also works with all the stakeholders in the ecosystem, from artisans and small businesses to FMCG giants like Hindustan Unilever Ltd., buyer applications such as Paytm and Pincode to logistics service providers and last-mile delivery solution providers and everyone in between. Current buyer apps on ONDC include Paytm, Ola, Mystore, Craftsvilla, Spice Money, Pincode, Magicpin, Yatri, Yatri Sathi, Namma Yatri, Snapdeal and Yaari.com.

Even marginalized communities who have no understanding of digital commerce can reap the benefits of the network. In October 2023, ONDC announced its goal of making e-commerce accessible to an estimated one million artisans, weavers and food processors from across India providing them with a digital stage to display their work, generate income, and secure their livelihoods.

From January 2023 to October 2023, the Network processed over 5,000 orders in the social sector domain — a category dedicated to onboarding and showcasing products from underserved sellers and communities.

Many restaurants and food service providers are shifting to ONDC due to its seller-friendly policies. In November 2023, 75,000 restaurants in 290 cities were on the network.

Furthermore, ONDC not only enables retail transactions but also transactions between businesses.

ONDC’s participants help onboard more sellers and small merchants onto the network. It has also collaborated with the likes of Google, Meta and HUL for the same. HUL has announced that it will help onboard nearly 1.3 million Kirana stores on the Network.

Recently, ONDC joined forces with Common Services Centers (CSCs), under the Ministry of Electronics and Information Technology (MeitY) to enable e-commerce access to rural citizens across India and facilitate rural entrepreneurs to take their businesses online.

RAI CEO feels that the network is inclusive enough to even accommodate existing incumbents like big marketplaces who might join the network to get access to a much broader base of sellers and buyers as well as benefit from ONDC’s B2B services.

The Ultimate Disruption

According to the Redseer Report, ONDC stands out as a potential disruptor, poised to democratize e-commerce across sectors. While ONDC has taken great strides in the brief period it became mainstream, the network has yet to achieve its full potential and there is still a long way to go with many creases being ironed out, and many moving parts still being added.

CEO of RAI informed that the apex body is working closely with ONDC to get retailers onto the network and also assist in areas like helping set up the right terms of trade for sellers and getting the right set of people for its category-level committees.

“It’s going the right way. This is a big change management cycle. So, it will go through its uninformed optimism phase, then informed pessimism stage and then informed optimism stage,” said the RAI CEO, speaking about ONDC’s progress. He explained that currently, it’s in the informed pessimism stage with critics and detractors pointing out holes. Yet, there are customers as well as sellers and other stakeholders who have benefitted immensely.

“We need a lot more buyer applications and sellers talking about their presence on ONDC for it to become more widespread. The inflexion point will come when you combine the trust factor of offline retail with the ability to sell online,” he said.

ONDC MD & CEO, Koshy, too feels that it will take some more time before the hockey stick effect kicks in like it happened in the case of UPI.

The hockey stick Effect is a growth pattern marked by an initial period of stagnant growth, followed by an exponential increase after a point of inflexion is reached.

“We’re creating sparks right now; the explosion is yet to come… it will come when we get the volume,” he had said in an interview last year.