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What is ONDC?

E-commerce has transformed the way businesses operate in India’s tech-driven economy. With the widespread adoption of the “anything-anywhere-anytime” shopping concept, India’s digital commerce market growth sees no leaps and bounds. The forecasted revenue of e-commerce is expected to reach US$71.29 billion by 2023. The growth can be up to 13.9% over the next five years. This indicates that the E-commerce sector will continue to play a significant role in India’s economy and its development.

The Indian government has taken steps to tackle monopolistic practices in the country’s e-commerce ecosystem by launching ONDC – Open Network for Digital Commerce – which operates on an open protocol. The beta launch of this network took place in Bengaluru, where it processed 161 orders in a single day. This move is aimed at promoting fair competition and creating a level playing field for all players in the e-commerce sector in India.

What is ONDC?

Open Network for Digital Commerce (ONDC) is an Indian government initiative which is designed to make the e-commerce sector more inclusive.

Small retailers in India have faced challenges in dealing with dominant e-commerce giants who charge huge fees for products. This has led to higher purchase costs for small retailers, who get limited options to choose from. ONDC intends to address this issue by providing an alternative platform that charges significantly lower fees, thereby enabling micro, small, and medium enterprises, as well as small traders, to participate in online marketplaces.

Its key objective is to transition from a platform-based model to an open network-based model. It will increase market competition and reduce monopoly in the e-commerce space.

How does ONDC Work?

It will function as an open network opening opportunities in the e-commerce sector. Local shop owners can reach out to their potential consumers. They can display their products and services on the search results of any app. Now consumers can shop for these using the ONDC integrated platform.

This integration means that a consumer searching for a product on a specific app, such as Amazon, will also see results from other integrated platforms like Flipkart. However, it is possible only when the present sellers and buyers have onboarded their data on this platform. It will be interesting to see how this new approach is received by both consumers and businesses.

Features and Benefits of ONDC

  1. Local commerce sector can reach on the same platform. Mobility, food ordering delivery, grocery, travel and hotel etc. everything can be reached in one place.
  2. It will work as a single open network for all the sellers and buyers.
  3. Increased digital visibility and availability of buyers and sellers irrespective of the app they use.
  4. Merchants can build a credit history by saving data.
  5. The system is compliant with the Information Technology Act 2000
  6. Payments are possible using any UPI Payment Apps.
  7. Reduced cost of sale and purchase of those products.

Why ONDC is crucial for India?

India’s adoption of digital payments, particularly through UPI, has resulted in unparalleled ease and convenience for customers. More and more Indians are switching to contactless payment modes, and we are emerging as a leader in the field of digital payments. The E-commerce sector in India has witnessed an impressive 11.8% growth in digital payments. The ONDC, a network for financial services, is even poised to offer promising prospects for industry players.

At present facing apps and sellers, apps work separately while apps like Flipkart and Amazon functioning for both buyers and sellers. But ONDC will bring a complete change to the scenario. On this platform, both buyers and sellers can be available together but hosted separately. Although the commerce ministry has no plans to cap the commission charged, the platform is promising to provide low selling and buying prices.

Unlocking Opportunities

  • Impact of ONDC on FinTech: It gives opportunities for B2B payment gateways to support their retail payments. With its expected increase in UPI transactions, FinTechs would need to provide reconciliation frameworks. It will give better visibility of payments and also save time on routine audits. Many SME Neo banks and FinTech institutions are aggregated and are eager to onboard onto the ONDC network. FinTechs can also offer a range of services, including accounting and inventory management, to sellers through this platform.
  • Impact of ONDC on Banks: Many prominent financial institutions and banks in the country are demonstrating significant interest in the ONDC network. These banks also have invested in ONDC to create a competitive E-commerce marketplace. It’s expected to draw synergies from the network’s structure that will help in providing credit to suppliers, sellers, and others within the network. Banks with no physical existence can also benefit from it. It will also increase their reach in tier 2 cities as well as villages. They can also use solutions like working capital financing, term loans, and merchant settlement transactions to promote financial inclusion. Banks that have cash flow-based credit approval systems for the Open Credit Enablement Network (OCEN) are also looking to extend these services to ONDC.
  • Impact of ONDC on Digital India: In India, this will transform the landscape of digital lending in a connected ecosystem. With the addition of more sellers, there will be an increasing demand for revenue-based financing, working capital loans, and innovative supply chain financing solutions. Moreover, it will boost retail lending by introducing Buy Now, Pay Later solutions. Since it will enable customers to make purchases on credit, thus helping thin-file borrowers build their credit history.

In recent year, India has seen a significant increase in the adoption of digital financial services. It is driven by regulatory initiatives and infrastructure developments such as IndiaStack. These initiatives have enabled FinTech companies to innovate and build new financial products and services that cater to the needs of underserved segments of the population.