The Open Network for Digital Commerce, or ONDC, was introduced in late 2021 by the Department for Promotion of Industry and Internal Trade (DPIIT) as a component of the Digital India initiative. It is a Government of India-backed, most ambitious initiative after UPI. ONDC will function for e-commerce and online shopping in the equivalent manner as UPI did for digital payments. It means having one meta store for all the shopping needs. It functions as a network of connected e-marketplaces where sellers, including brands, can list and sell their products directly to customers.
The first-of-its-kind initiative, ONDC aims to make e-commerce interoperable and provide businesses more control over strategic decisions. Although it was introduced in April 2022, business was slow. It could only handle, at most, a few hundred transactions per day over the first six months.
Even while the ONDC concept appears to be sophisticated, it is quite simple. The network divides the order-delivery process into three parts: buyer-side applications that are consumer-facing, seller-side applications that work with businesses and merchants, and logistics providers that manage the last-mile delivery to the customer.
ONDC has the power and potential to revolutionize e-commerce and online shopping. It is like having Amazon, Myntra, Flipkart, Zomato, BigBasket, uber, and Paytm all on 1 platform. It also allows the customers to compare prices for the same product sold by different retailers thereby giving them more choices, and better deals at the best prices. It will help in curbing the monopoly of big players and increasing the reach of small merchants. It will also help in making a larger number of buyers available to all the sellers present on the network.
In contrast to its enormous physical commerce industry, India’s e-commerce ecosystem has experienced a significant boom but still only accounts for 4.3% of the country’s overall retail environment. In rural and small towns, this share further decreases. The existing platform-centric structure of the e-commerce value chain, which limits transactions between buyers and sellers to the individual platforms on which they are both listed, is the bottleneck.
ONDC will alter how India shops. When you access an e-commerce website, the e-commerce company decides what you can buy, from whom you can buy it, how you pay for it, and how it gets delivered. This experience is unbundled under ONDC, and clients will have a huge variety of products from a huge variety of vendors and a huge variety of payment and delivery options.
For instance, a customer can need a certain item, log into their preferred application, search for it, and see a few possibilities to purchase. There are so many other sellers who are not present on the application the customer uses, and they may have provided them with better options in terms of pricing, quality, and delivery, but must switch between various applications to locate more options. There is no way for the customer to find them. On the other hand, a typical seller typically only displays their products on a small number of applications, while customers are placing orders for the same goods on several other applications on which the seller is not registered. For the vendor, this is a huge opportunity lost. Furthermore, the seller is subject to the terms and conditions of the applications from which he sells. Given that setting up the full e-commerce value chain is complicated and expensive, most merchants cannot afford to build their own platform. Due to this, the current e-commerce paradigm is inaccessible to millions of shoppers and sellers.
By linking all the network’s buyers and sellers together, the open network-based protocol known as ONDC would completely change the way that e-commerce operates in India. This is made possible by an open protocol that enables the decoupling of the e-commerce value chain. As long as both applications are connected to the ONDC network, this will enable a buyer using one application to freely transact with a seller listed on another application. This network operates similarly to how UPI does for electronic payments, allowing the sender and recipient to conduct a transaction even if they use different banks and applications. Similarly, on ONDC, a transaction can still go place even if the buyer and seller are using different applications. The goal of ONDC is to usher in the next significant transformation in the e-commerce sector.
Process of ordering for the buyer
A buyer can connect with the network through a chat widget, an application, an IVR solution, or a website, basically any type of application, and search for an item. The ONDC gateway checks the multi-domain registry and broadcasts this search to many sellers as per the category of the items searched. These sellers can be listed on any applications on the network. Search results show the buyer multiple options to choose from. The buyer can select from the options they like the most. Then they look for delivery options. The gateway broadcasts a request with the buyer’s location details as well as of the seller to all logistics providers that serve at both locations. Search results show the buyer multiple delivery options to pick from. They can choose from sellers who can deliver the products themselves or can also choose from other delivery service providers. Then the buyer is directed to the checkout page. The buyer confirms the details before making the payment through the preferred mode of payment. On completion of the transaction and the money is received by both parties.
Another example is when the buyer needs to order multiple products and services. Raj is moving to Kerala for work, and he needs to buy a few suitcases, flight tickets, and a course on basic Malayalam and must also book a homestay. Without ONDC, he would have to do this with at least four different applications. With ONDC, he can log on to any application of his choice and book all of these in a single checkout experience.
Benefits to the seller
Sellers get affordable access to the whole value chain with ONDC. A seller can access the full bio universe through all applications on the network by registering just once through any one of the applications on the network. On ONDC, sellers can select the terms and conditions they wish to work under. All these benefits boost the seller’s profitability. The merchants run the risk of being displaced by the alternatives the platform has to offer in today’s platform-centric society. They thus no longer have access to the world of buyers.
On the other side, ONDC eliminates the risk of replacement. The seller can switch to the next seller application and maintain visibility to all potential buyers. In that instance, all customers can still see the seller. As a result, even if you join through a different seller application, your reputation will endure. Sellers can also keep a network-wide reputation.
With ONDC, sellers would also receive extensive business improvement analytics from the seller application to gain useful business-related information. On the ONDC network, technological companies can designate themselves as technology providers. By doing this, you will make yourself instantly discoverable by numerous other networked programs.
Impact of ONDC on other applications
Sellers have 2 options to reach out to their potential customers.
- The first is to set up their own website. This requires a lot of technical support and expertise. This becomes a lengthy and pricey process as it requires several permissions, fees, licensing, etc. The seller also needs to spend on the advertisement costs to make the website visible, to track customer activity, and manage the website.
- The second option is to register on online marketplaces or aggregator platforms. Even though this process seems easy and less tricky, it still has several drawbacks.
Both top corporations in this sector, Amazon, and Flipkart, are based in the US. On their platform, they promote and sell your goods in exchange for a sizable portion of the sales revenue. There have also been accusations of brand favoritism, claiming that these platforms have a bias against a small number of brands. These marketplaces also occasionally collect information from the merchants to keep one step ahead of the competition and develop their own products depending on consumer demand. Another significant problem with e-commerce is the slow development achieved by MSMEs, small firms, and smaller merchants. Because e-commerce is less common in rural towns and villages, these small business owners are not able to make use of its benefits.
Most of them have been unable to begin their online professions on these digital selling platforms due to their lack of technological knowledge and the limited quantity of opportunities. The ONDC was created to deal with these problems and promote digital trade. The objective is to make e-commerce available to small businesses and merchants. Developing ONDC will have a huge impact on these two players as well as Myntra and Nykaa as these players are at the top of their respective e-commerce marketplaces. There will be price competition as well as to retain their sellers, these marketplaces will have to lower their revenue margins from the seller as well as promote the use of their websites for the customers and make it more customer friendly to gain more traffic on their applications.
