This article is inspired from an enlightening session with Mr. Uttam Nagaraj, Senior Product Manager at Paytm, who graced Agraga's 1st-anniversary celebrations on October 5th as an external guest speaker. In his engaging talk, he briefly delved into the Open Network Digital Commerce (ONDC) initiative, highlighting the imminent changes it promises for the e-commerce landscape in India. His insights ignited our curiosity, prompting a deep dive into ONDC, and what follows are our perspectives on this initiative as of today.
However innovative and/ or disruptive an E-retail Startup is, they face the systemic challenge of facing stiff and aggressive competition from businesses that have taken over majority of the market share, due to, having allocated a higher budget towards advertisement and marketing. These competitive advantages have led to them monopolising that market segment, making it tough for new entrants and smaller businesses to break into and secure a market share.
ONDC was set up to combat this very issue. Its objective is to level the playing field in the e-commerce space, by creating an open and standardised network, so that all players have a chance at securing market share in their segment. In short, it is the Indian government’s initiative to curb digital monopolies and standardise online commercial transactions for all.
Since, the pilot phase in April of 2022, ONDC is well on its way to achieve its initial target of, putting around 8 million small and mid-size retailers¹ on a more even footing with the likes of Amazon India and Walmart-owned Flipkart, which control more than 60% of the country’s online retail market².
Reduced middlemen costs: ONDC is a network based on open protocol, which facilitates transactions between a buyer and a seller. Touted as the UPI of e-commerce, it seeks to move digital transactions from a platform centric model to an open network. This creates a level playing field, where the big e-commerce players and smaller players co-exist equally. Switching to an open protocol, greatly reduces the seller’s operational costs by a huge margin, in comparison to the existing e-commerce platforms. E-commerce platforms like Amazon, Flipkart, etc, charge in the range of 30% to 40% from the seller, citing Platform Fee, Commission Fee, Shipping Fee and Collection Fee³.
Breaking the existing monopolies: Due to having a wide range of products on offer, from different sellers, across established brands and small hyperlocal Kirana stores, the consumer can meet all his needs on one platform, thereby eliminating the need for different E-Commerce apps.
Digitisation of entire value chain: Existing businesses can become a part of the ONDC network and grow not only their own business but also expand the E-Commerce retail market in India. They can fulfil roles such as Buyers, Sellers, Logistic Partners, Digital payment providers and Warehouse Providers, etc. There are already over 36,000 sellers and 45 network participants4, and persistent efforts are underway to onboard more, so that the e-commerce penetration in the Indian retail market reaches 50% by 20255.
Hyperlocal players Dunzo, B2B startup Paisool, ShopX, Goodbox, logistics providers Delhivery, Shadowfax and payments fintech Juspay, are some of the initial network participants. Meanwhile, Paytm is a key participant on the Buyer side and provides integrated payment processing, a streamlined transaction process, dedicated customer support, enhanced security measures, and a seamless user experience for ONDC. Consumers can access the ONDC network on the Paytm UPI app.
Unshackling e-commerce from its current format will not be an easy task. But India did it once when it launched BHIM-UPI in 2016, to democratise how digital payments were done. In less than six years, the technology has been adopted by the UAE, Nepal and Bhutan, Singapore. It is still yet to be seen whether ONDC becomes a local success story and also gain global acceptance.
References:
¹ Inc42: [Explainer] How India’s Ambitious ONDC Project Can Reinvent Indian Ecommerce
² The Economic Times: Tech (25th May 2023)
³ Browntape: eCommerce Seller Fee Calculator
4 Pib.gov.in: PIB Delhi (22 May 2023)
5 The Economic Times: Industry (11 May 2023)
Image by macrovector on Freepik
Special thanks to Sanjana Sudarshan for writing and editing this Vimarsha.