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ONDC
Background

India has always been a huge market, thanks to the billion-plus population. When India opened to the world in 1991, multinational conglomerates saw a huge opportunity for doing business in India. With the induction of technology over the next few decades post-liberalization, India grew faster than most economies in the world. And revolution in the telecom sector followed by a boom in digital transactions made e-commerce a popular choice in the relatively young population of the country. Consumers are happier to be greeted with choices and the whole shipping experience right from the comfort of their homes. However, the dominance of e-commerce and the rise of direct-to-consumer (D2C) business models is also posing an existential threat to Indian traders – wholesalers and retailers.

Indian traders are mostly unorganised, with little or no branding, and very low access to funding. Meanwhile, most e-commerce companies are directly or indirectly owned by foreign entities that are powerful, organised, equipped and well-funded. Thus, Indian traders don’t stand a chance against them. Others who opted to sell their products through e-commerce platforms have complained that they are left to the whims and fancies of the tech giants in the name of algorithms. This is a massive problem for the Government as well, as the unemployment rate is not something that we boast of. So the Government has taken up this challenge of breaking the monopoly of e-commerce platforms. The Government’s preemptive measure might surprise you, however, the Government also sees a great opportunity here for itself – tax collections! India’s trading sector is heavily informal and therefore, doesn’t contribute much to tax collections. If sales occur digitally, the Government has the added benefit of generating higher tax revenues. So, thus, begins the story of ‘Open Network for Digital Commerce’ – touted as “the UPI of E-commerce”, as the Government is excited after the success of the UPI.

What is ONDC?

Open Network for Digital Commerce (ONDC) is the democratisation of e-commerce platforms. The Government believes that markets must be open and equal to all, and e-commerce platforms are also a market. Thus, small sellers must also have access to the same systems and technology that the giants have. ONDC is set up as a non-profit company similar to the National Payments Corporation of India (NCPI). It shall work as a network that would allow sellers to voluntarily display their products and services across all the participating apps and platforms. ONDC protocols would standardize operations like cataloguing, inventory management, order management and order fulfilment. The network will use open specifications and protocols and therefore, would be limited to any single platform – just like UPI.

Today, NCPI provide the infrastructure and the network for UPI which various apps and websites such as Paytm, Google, PhonePe, etc. use to facilitate online payments. ONDC would work similarly. It doesn’t require buyers and sellers to use the same app to complete a transaction. The platforms would be interconnected to the ONDC network and irrespective of the app or website, people can buy and sell products freely. So, you may be registered as a seller with Paytm, and yet a customer might place an order from Amazon, and the network will take care of the rest, just like UPI where you can pay through GooglePay although your friend is using PhonePe. Thus, ONDC goes beyond the current platform-centric digital commerce model where the buyer and sellers have to use the same platform, or the same app, to be digitally visible and do a business transaction. That’s a democracy, in a true sense, as no one person owns the market (platform), or rather everybody owns the market!

In April, the Department for Promotion of Industry and Internal Trade (DPIIT) launched a test run of ONDC in five cities – Delhi-NCR, Bengaluru, Coimbatore, Bhopal, and Shillong and it has already unveiled its plans to add 150 more retailers in the pilot phase.

How does ONDC work?

The e-commerce giant Amazon might seem like one company to a person, however, it consists of a group of companies operating together to provide e-commerce services, for example, Amazon Seller Services Private Limited looks after the registration of sellers and all the services that sellers would require, Amazon Transportation Services Private Limited looks after the shipping of the products from the seller to the Amazon warehouses, and ultimately to the consumers, and similarly more companies are operating under the hood in the entire buying to delivering an experience. ONDC is also a similar network, except that it would interoperate amongst all players.

How does ONDC work?

Think of ONDC in line with a stock exchange where there are multiple buyers, and multiple sellers, participating through brokers on each side, while depositories and clearing corporations play their roles in hindsight. ONDC will play a role similar to the role of Stock Exchanges in stock markets. Needless to say, buyers and sellers would be the most important aspect of this platform, as everything is being built for them to interact seamlessly and transact smoothly with the help of the network. For ONDC to succeed, very high buyer and seller participation would be of paramount importance. Apart from buyers and sellers, there will other participants who will play their roles in the functioning of the network –

The network – Do you know how many people employees the popular cricket body, Indian Premiere League (IPL) has? Well, you can count them on your fingers! IPL Governing Council does all the decision-making and sub-contracts everything from marketing to auction to different companies who operate in that sphere. The ONDC company would be similarly responsible for deciding the framework, the standards and the protocols and licensing different players to run the network. The ONDC would merely oversee the entire functioning while the actual work would be done by other participants.

Buyer-side platforms – The buyer-side platforms would be responsible for connecting the buyers to the network. This would be through websites and apps, and maybe even through Metaverse in future. Their prime task is to allow customers access to browse and search for the products that are on sale on the ONDC network. Currently, only Paytm has built a buyer-side interface. However, most e-commerce companies can join the network with certain changes to their existing platforms. Thus, buyers may not feel any major change in their buying experience.

Seller-side platforms – The seller-side platforms will be responsible for connecting the sellers to the network. They would be required to build applications that allow sellers to access the ONDC network, put their products up for sale, and accept orders. These companies would also be tasked with pitching ONDC to more and more merchants. The buyer-side companies can also double up as seller-side platform providers as it is all about harnessing the technology and providing access to the market. Companies like Digit, eSamudaay, Gofrugal Technologies, Growth Falcons, and SellerApp have already signed up to provide the seller-side platform.

Gateway companies – Searching for products on one website and finding results from another website where the seller is registered won’t be possible unless there are companies who interconnect them. The gateway companies would be tasked with the responsibility of broadcasting the request received from buyer-side platforms to the seller-side platforms that are listed on the ONDC registry. All this would happen in real-time. The gateway companies would act as intermediaries or agents facilitating the exchange of information between buyer-side platforms and seller-side platforms.

Technology service providers – To facilitate the entire network various software and technical add-ons would be required. Therefore, many tech companies are also involved in providing these add-ons.

Logistics companies – The logistics companies would register on the platform to provide shipping services. The logistics companies would register themselves in the network registry, integrate themselves with the network and thereafter, accept orders for shipping from the network.

Conclusion

Instead of concentrating power in the hands of a few powerful players, an Open network will allow consumers and sellers to choose which apps they want to use to access a single network. This will also keep government involvement to a minimum. Besides, the ONDC platform will not merely cater the retailers but also to wholesalers and Business to Business (B2B) transactions. The success of the open network would highly depend on the participation of various key players. ONDC is an initiative in the right direction and its success will take Indian e-commerce into a new era of interoperability.

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