In April, the government of India launched the Open Network for Digital Commerce (ONDC) to compete with the global giants that dominate their rapidly growing e-commerce market.
The most recent information is that a few enormous companies intend to join the ambitious Open Network for Digital Commerce (ONDC) e-commerce network. According to a report by the Economic Times, a pilot programme involving kiranas and small and medium-sized businesses in Bengaluru and four other cities is already in operation.
Today, we’ll cover everything you need to know about the government’s ambitious ONDC platform, which aims to transform the e-commerce landscape much as UPI did for digital banking.
What is ONDC?
ONDC stands for Open Network for Digital Commerce, a section 8 incorporated non-profit organisation in India. It is a project of the Ministry of Commerce and Industry’s Department of Promotion of Industry and Internal Trade. It aims to give everyone who participates in the e-commerce industry a level playing field. Also, it will act as a common platform for standardising the logistics, operations, and supply value chain, encompassing suppliers from all regions of the nation. Establishing an open network for them will significantly boost the nation’s e-commerce industry and assist in integrating customers and suppliers from all over the country.
How will ONDC work?
The need for a common platform became apparent when small-scale direct-to-consumer businesses were largely excluded from the e-commerce space, even though this industry is expected to grow at a rate of 20% annually. Small kirana stores and other small businesses make up 80% of the nation’s retail space but are unable to take advantage of the e-commerce boom due to a lack of knowledge, resources, or scale.
The ONDC will operate as an open network where it won’t be a single platform but rather a gateway that allows buyers and sellers from various platforms to connect. The ONDC buyer app and ONDC seller-side app with a gateway between the two that connects them will be the central components of this interface. The gateway will serve as a connecting thread to enable price discovery as well as the matching of buyers and sellers based on factors such as accessibility, location, customer preferences, and availability.
Buyers from various zones who log in to the app and look for the products and services they require will be handled by the buyer-side application. The listing of different sellers and the goods and services they provide will fall under the authority of the seller-side application. They will also be in charge of working with the logistics department to ensure that the right deliveries are made to the final customer. The ONDC Amazon sellers will need to be made aware of and convinced to use it by the seller side applications.
The fundamental operating principle of ONDC will be like that of UPI. Customers will have access to all sellers who are a part of the ONDC network and are offering their goods and services by downloading the ONDC app of their choice. By matching customers with available products and sellers, the price will be determined. This platform will be expanded to include products and services from the wholesale sector, food delivery, logistics, urban services, travel, mobility, etc. instead of being restricted to the retail industry.
An impartial platform or portal akin to UPI will serve as the ONDC open-source network. The process or the source code for its development will be made available without charge in order to encourage as much participation and integration as possible.
Features of ONDC
- By converting digital or electronic commerce from a platform-centric model to an open network, ONDC, a UPI of e-commerce, aims to democratise the industry. By storing data through ONDC, merchants will be able to reach customers and establish credit histories.
- The proposed government-backed platform aims to level the playing field for e-commerce titans and offline retailers who have been railing against the unfair business practices of these e-tailers.
- The ONDC system will make it possible for buyers and sellers to transact over an open network regardless of the platform or application they use. By dissolving silos and creating a single network to spur innovation and scale, it will also empower businesses across all industries, from retail to food to mobility.
- The new framework aims to support open networks created using open specifications and open network protocols that are independent of any platform.
- This initiative is anticipated to digitise the entire value chain, standardise operations, increase supplier inclusion, improve logistics efficiency, and increase customer value.
- The government’s official statement states that ONDC must take all necessary steps to protect the privacy and confidentiality of data in the network. ONDC does not require participants to share transaction-level data with it. Providing anonymous aggregate metrics regarding network performance while maintaining privacy and confidentiality will be the company’s responsibility in collaboration with its users.
Opportunities for banks with ONDC
1. New channels
The most important opportunity offered by ONDC is as a new channel for both retail and wholesale use cases because it is a modular and unrestricted marketplace. For instance, a significant Indian bank called is introducing a grocery-buying app for its end users on the platform. And another Bank gives its MSME clients improved access to ONDC by utilising a third-party service. Customers who were previously unable to take advantage of branches and online channels now have access thanks to this strategy.
2. Tech as a service
Financial services firms can offer a full banking tech stack by combining buyer and seller apps. Through the expansion of the business-to-business-to-customer (B2B2C) market, value-added services or subscriptions will now have more opportunities to generate income.
3. Data-driven banking
The greater reach also gives banks access to more detailed and detailed data about customer behaviour, both for retail and MSME customers. Every transaction that passes through the bank’s payment rails gives them access to information about customer buying patterns, allowing them to personalise interactions and advertise pertinent deals and loyalty programmes.
Data from ONDC-enabled relationships improves visibility into orders and invoices for MSME customers in particular, which can contribute to a more accurate evaluation of their creditworthiness. As a result, banks can create unique financial solutions by utilising a supply chain finance ecosystem that is driven by technology.
Challenges for banks with ONDC
Despite its limitless potential, ONDC is still a developing platform and is probably going to experience adjustments and disruptions before stabilising. We expect banks to face the following major obstacles:
1. Grievance recovery
Maintaining relationships with customers that are based on trust requires effective grievance procedures. On the other hand, ONDC is still developing policies in this area. On the other hand, it is still unclear how follow-ups will be handled, even though ONDC is anticipated to handle the first instance. Therefore, if financial institutions want to keep people’s faith in their brand after launching buyer/seller apps, they need a more effective system for resolving complaints. They must adopt a strict risk governance strategy and not just rely on ONDC to do so.
2. Data security and privacy
Additionally, banks will oversee ensuring data security and privacy protections. Policies governing ONDC-specific data and national/sectoral data are currently awaited. Banks, financial services providers, and insurance companies would be wise to be proactive in defining their data governance guardrails with ONDC in mind, easing their compliance journey when the policies take effect.
3. Policies to scale
Since there is no limit on the number of participants on the ONDC platform, all policies must be scalable. These regulations must change over time. Therefore, banks should adopt a principle-based model rather than a rule-based model.
4. Benchmarks for the customer experience
Banks must surpass or at least match the UI/UX, tech maturity, and fraud management capabilities of current marketplaces to be successful and remain competitive on ONDC. This would play a significant role in boosting end users’ long-term confidence in switching to ONDC.
The Open Network for Digital Commerce represents a transformative force that has the potential to revolutionise the way we engage in online transactions. With its decentralised, transparent, and efficient nature, it paves the way for a more inclusive and empowering digital future.
1. What does ONDC’s open-source network consist of?
Ans: An impartial platform or portal akin to UPI will serve as the ONDC open-source network. The process or the source code for its development will be made available without charge to encourage as much participation and integration as possible.
2. In India, when will ONDC begin?
Ans: On April 29, 2022, the ONDC pilot programme was introduced in India, with five key cities serving as showcases for the nation’s various regions. These cities include the Delhi National Capital Region, Bhopal, Bengaluru, Shillong, and Coimbatore.
3. In what ways will ONDC support sellers?
Ans: Along with the advantages of lower operational costs, improved product and service visibility, access to cost-effective logistics options, etc., ONDC will help the sellers access wider markets than their current ones.
4. Who will be in charge of handling complaints on the ONDC network?
Ans: Platforms for grievance redress and the rules and regulations that go along with them are still being developed. The initial procedure, however, places the burden of complaint redressal for returns and refunds on the buyer apps.