What is ONDC? Is it the Future of E-Commerce in India?
The Department for Promotion of Industry and Internal Trade (DPIIT) conducted research during the COVID-19 pandemic in the country to understand its impact on small sellers and the functioning of the local supply chain.
As a result of the research, it was found that there is a lack of connection between online demand and the ability of local retailers to participate and engage. Further, studies on the matter helped the government to discover the bottlenecks of the existing digital commerce ecosystem in India.
Then, consultations were held with multiple ministries and industry experts to identify possible solutions to address the bottlenecks in India’s digital commerce ecosystem. Taking inspiration from population-scale solutions such as the UPI, IMAP/SMTP (email protocols), HTTP (protocols for data communication and browsing), etc., ‘Open Network for Digital Commerce (ONDC)’ was proposed to revolutionise digital commerce in India (source – ondc.org).
The DPIIT then constituted a committee of experts to analyse the potential of ONDC.
What is ONDC
ONDC stands for Open Network for Digital Platform and is a non-profit initiative in India aimed at developing an open e-commerce ecosystem. It is a government-backed project initiated by the Department for Promotion of Industry and Internal Trade (DPIIT) in December 2021 to develop open e-commerce and provide a digital marketplace for all businesses, irrespective of their size of affiliation. It poses a prospective alternative to other e-commerce giants like Flipkart & Amazon.
ONDC uses the Unified Payments Interface (UPI) projects as a base model. The UPI allows users to send or receive money irrespective of the payment platforms (Paytm, Phonepe, etc.) on which they are registered.
Investors of ONDC include giants like Kotak Mahindra Bank, Bank of Baroda, CDSL, SBI, ICICI bank, NABARD, SIDBI, etc. and is currently in its testing stage in cities like Delhi NCR, Mumbai, Bangalore, etc. as of July 2022, the ONDC has expanded its network in Noida, Lucknow, Chennai, Kolkata, Pune etc.
Let us understand the concept of ONDC with a simple example:
Suppose you want to purchase a wallet; you will start surfing on different e-commerce sites like Amazon, Myntra, etc., and suddenly you think about ONDC. Currently, ONDC has not launched its application, but there are partner apps where you can do this: Paytm, Magicpin, Mystore, etc.
In the Paytm app, there is a separate section of ONDC. All you have to do now is browse through the accessories section, filter out the wallet you want to purchase and make a payment. Simple!
Any platform or application can participate in the ONDC network. It operates on an open protocol and a network-centric model that is like the UPI of e-commerce. Have a look at the illustration below:
ONDC is a decentralised platform which means no single entity can control or regulate the network, which is good for small businesses.
Although it is still in the development phase, it has gained substantial reach in India, with several major companies and organisations already participating in the network.
ONDC and its impact on E-commerce
ONDC impacts e-commerce in multiple ways:
- It reduces entry barriers for businesses of different sizes, making it easier for them to create an online presence.
- Customers can search across different platforms and compare the prices of the products. It enhances user convenience.
- It provides transparency, which helps customers find the best deals and enables them to make informed buying decisions.
- ONDC can help remove the digital divide by providing rural consumers access to a wide range of products and services. This could lead to increased economic opportunity in rural areas.
- It fosters competition and helps the different online platforms to innovate, eventually leading to lower prices and increased economic opportunities.
Role of Government
The Indian Government plays a crucial and multifaceted role. Below mentioned points state how the government is involved:
1. The government frames the policy framework and regulations of ONDC to ensure fair competition.
2. The Government of India provided the initial funding of ONDC to kickstart the development and infrastructure.
3. The government advertises, trains resources, encourages research and development and provides adequate support to SME businesses..
ONDC and the Evolution of Digital E-commerce in India
ONDC initiative will support transforming the ₹2.85 Lakh Crores (USD 38 Billion) Indian digital commerce market. It will help in the economic development of the country and will provide ample opportunities to millions of retailers and unemployed people.
Further, it will help in the expansion of digital commerce with cost reduction. These costs can include acquisition costs and inventory costs.
Challenges faced by ONDC
ONDC, despite its potential to revolutionize Indian e-commerce, faces several challenges that need to be addressed for its success.
1. Giant E-commerce platforms like Amazon & Flipkart have established userbase and customer networks. It can be a challenge for ONDC to make people understand the concept of open protocol and convince them.
2. Since ONDC is still in its developing stage, chances are likely that customers might not be familiar with the usage of ONDC. Building awareness and providing education about the open network can be challenging.
3. Maintaining large volumes of data and transactions and ensuring smooth integration across different platforms registered under ONDC is a complex task. Building a robust infrastructure is crucial to tackle this.
4. Integrating ONDC efficiently with existing logistics and supply chain infrastructure can be a challenge. It is vital for smooth delivery and fulfilment.
ONDC vs. Traditional E-commerce Models.
ONDC operates on a network-centric model.
If we talk about existing platform-centric models or traditional e-commerce models, both the buyers and the sellers must use the same application or platform to carry out business transactions. In contrast, in network-centric model of ONDC, buyers can access all the services currently provided by various sellers on various platforms through a common network.
ONDC is backed by the government whereas traditional e-commerce platforms function independently without any involvement of the government.
ONDC majorly focuses on SMEs, while traditional e-commerce platforms may or may not work in the interest of small businesses.
Working of ONDC
A retail seller needs to register on ONDC and list the services and products on the platform. Once listing is done using the ONDC’s open protocol, products and services can be found by the consumers on different e-commerce platforms.
Whoever searches for the product will be able to see the location of the seller and can buy from the nearest shop available to ensure the fastest delivery.
Conclusion
ONDC aims to “democratize” digital commerce, moving it away from platform-centric models like Amazon and Flipkart to an open network. The transactions are executed through an open network.
It has the potential to revolutionize Indian e-commerce by promoting open networks and fair competition. It may enable more sellers to be digitally visible. Analysing ONDC’s progress can give us valuable insights into the future of e-commerce in India and beyond.
We hope that the blog answered all your thought-provoking questions about ONDC.
Frequently Asked Questions (FAQs)
1. In which year ONDC was established?
Ans. ONDC was established in the year 2021.
2. Who established ONDC?
Ans. ONDC was established by the Department for Promotion of Industry and Internal Trade (DPIIT).
3. On what model does ONDC operate?
Ans. ONDC operates on a network-centric model.
4. Is ONDC a UPI app/platform?
Ans. No, it is not a UPI app rather, it is like the UPI of e-commerce.
5. Who are the investors of ONDC?
Ans. Investors of ONDC include giants like Kotak Mahindra Bank, HDFC Bank, SBI, etc.
