ONDC is a not-for-profit, open e-commerce platform that aims to provide a level playing field for all types of sellers
G Krishna Kumar, JUN 05 2022, 22:16 ISTUPDATED: JUN 06 2022, 07:33 IST
Buoyed by the success of several digital initiatives in the country from Aadhaar to Co-Win and UPI transactions, the Union government has embarked on an ambitious project “Open Network for Digital Commerce” (ONDC).
ONDC is a not-for-profit, open e-commerce platform that aims to provide a level playing field for all types of sellers, from kirana stores to retail chains and even larger e-commerce players.
The pilot phase of ONDC was kicked off recently in five cities (Bengaluru, Bhopal, Coimbatore, Delhi-NCR, Shillong) with 150 sellers, and over the next 6 months the footprint is expected to increase to 100 cities across the country with over 3 crore sellers. Reports suggest that there are 1.2 crore kirana stores in the country and just 15,000 of them are e-commerce enabled.
Online retail Gross Merchandise Value (GMV) has tripled over the past 5 years and yet it represents just 4.3% of the total sales in the retail segment. In comparison, e-retail as a percentage of overall retail sales in South Korea, China and the UK are at 26%, 25% and 23%, respectively.
A recent report indicates that the e-commerce market is predicted to increase from an estimated $75 billion by 2022 to $350 billion by 2030. It must also be noted that Amazon and Flipkart account for about 60% of the e-commerce market in India. Can ONDC seize the moment in the retail space?
As of now, large players like Amazon, Paytm etc have created apps/portals where buyers, sellers, logistics and payment are integrated onto their platform. Thus, a customer who is connected to one app or portal (say Paytm) can buy goods from that portal alone. If the buyer wants to buy from any other app (say Amazon), he/she has to log into the app and buy goods. Presently, all the e-commerce players have a centralised approach. ONDC on the other hand has a decentralised network approach. Here, the same Paytm platform can be used by the buyer to search for a product. Instead of seeing just what is offered by Paytm sellers, the buyer can choose from a variety of sellers: it could be from a nearby kirana store or from other established e-commerce players. This gives freedom of choice for the buyers and sellers as well. Most importantly, the buyer can buy goods or services without logging into different e-commerce portals or apps.
The buyers and sellers can transact irrespective of the platform or application they use to be digitally visible. Such a public digital infrastructure enabled by ONDC can potentially disrupt hospitality, travel, food delivery and mobility segments in addition to the retail segment.
The ONDC is based on an open protocol called Beckn, which allows interoperability of a wide variety of buyers and sellers. This effort to standardise all aspects in the entire chain involving various entities for exchange of goods and services is much needed as it would enable seamless experience for all the participants within the ONDC network. The platform is expected to perform the role of an enabler for e-commerce expansion and to be a market- and community-led initiative instead of being a regulator. Most importantly, such an open and decentralised network would certainly spur innovation.
It aims to work on three key aspects: dynamic pricing, inventory management and optimisation of delivery cost, and thereby bring down the cost of doing business for all players, including retailers.
Several technology startup companies have already started working on ONDC. To provide long-term vision and support for the initiative, private sector banks (HDFC, Kotak, ICICI), public sector banks (SBI) and financial institutions like BSE and NSDL among others are jointly owning ONDC. Several news reports indicate that many private banks, tech giant Google and FMCG companies like Dabur, ITC and Unilever are likely to join the ONDC network.
One of the biggest challenges ONDC will face is to replicate or better the existing user experience and quality of service provided by leading e-tailers in the country. As the e-tailers own the end-to-end system, they are able to provide assurance on the quality of products and timely delivery. ONDC would need to include the right checks and balances to create predictability in the decentralised system.
In addition, a strong grievance redressal and dispute resolution mechanism must be in place for earning the trust of buyers and sellers alike. While some of the big e-tailers provide local language support in their portals and apps, ONDC could play a significant role in language localisation, voice- based search and better user experience.
There were several unsuccessful attempts to digitise kirana stores in the past. Lack of success can be attributed to technology that was still evolving as well as low-speed internet, high mobile data tariff and low awareness amongst kirana store owners. Right now, India’s 4G data charges are among the lowest in the world at $0.68 per GB. In addition, availability of cheaper mobile phones will help in onboarding users onto the ONDC ecosystem. Awareness among local sellers, however, holds the key to success. Most importantly, established e-commerce players participating in the ONDC initiative will be a win-win for the overall ecosystem as India tries to catapult into the digital commerce space. Can ONDC replicate the success of UPI, where the banking sector actively participated? It will be a challenge, but with active participation from stakeholders, there is hope.
(The writer is an ICT professional and a columnist based in Bengaluru)
