From Startups to Big Players: ONDC’s Impact on MSMEs and FinTechs
Karbon Business
India's B2B payment product - Faster onboarding, superior service & lower cost
ONDC (Open Network for Digital Commerce) project accelerates banks and FinTechs to have ample potential to democratize online commerce. ONDC helps to make financial services more accessible and affordable for micro, small, and medium enterprises (MSMEs) and small-scale vendors.
It is valid to assert that e-commerce has permanently transformed nationwide business operations, serving as a game changer in India’s tech-driven economy. With the remarkable expansion of “anything-anywhere-anytime” purchasing, India’s digital commerce sector is poised for further growth shortly. The projected revenue of the e-commerce market is expected to reach US$71.29 billion in 2023, with an estimated 13.9% increase over the next five years.
The government has established an open network protocol to maintain the competitiveness of India’s e-commerce sector. This provides local small businesses with access to a decentralized e-commerce network. The groundbreaking platform ONDC is set to revolutionize digital commerce by offering a competitive and inclusive marketplace. By leveraging ONDC’s platform-agnostic discoverability, MSMEs and end users can swiftly digitize their businesses, promoting increased interoperability. Over the next few years, the plan will elevate e-commerce penetration from 8% to 25%.
Decoding ONDC: An Overview
ONDC, an innovative program initiated by the Department for Promotion of Industry and Internal Trade (DPIIT), is hailed as the Unified Payments Interface (UPI) equivalent of e-commerce. ONDC facilitates the transition from the existing platform-centric approach to an open network. It is expected to break the monopoly of well-known businesses like Amazon and Flipkart, which account for half of India’s online sales.
ONDC provides open-source protocols for vendor matching, price discovery, and cataloging developed using IndiaStack. ONDC aims to foster fair and widespread participation of sellers while facilitating increased digitization and low-cost national discoverability for MSMEs and small businesses. Players can access the platform through a single registration to sell or purchase across various sectors, including groceries, meal orders, deliveries, travel and hotel bookings, and more.
Microsoft is among the big tech companies that have joined the network, aiming to disrupt the duopoly of global e-commerce giants and integrate smaller retailers into the organized realm of online trade. As one of the initial members, Microsoft will provide retailers with easier access to the technology typically utilized by e-commerce behemoths like Amazon and Flipkart. Now, let us examine the anticipated impact of ONDC on the burgeoning FinTech industry and the growth-oriented banks in the country as it paves the way for enhanced financial inclusion.
India is outpacing the rest of the world in digital payments due to the simplicity and convenience of UPI and the increasing number of clients adopting contactless payment methods. A platform like ONDC presents significant opportunities for businesses in the financial services industry, considering the 11.8% surge in digital sales recorded by India’s e-commerce sector.
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With this digital marketplace, which has the potential to expand beyond the scope of Amazon and Flipkart, fintech and banks should explore new revenue streams and target a broader clientele.
Impact on Fintech:
By facilitating merchant-to-merchant retail payments, ONDC will create opportunities for B2B payment gateways. The ONDC network is expected to elevate UPI transactions to a new level. As transaction volumes increase, fintech companies must enter the market and offer reconciliation frameworks. This will help reduce the time required for routine audits and provide better payment visibility. SME neo banks and fintech firms operating in the accounting and invoicing sector have gathered many small and medium-sized businesses. By onboarding these merchants onto the ONDC network, they aim to capitalize on its potential. Fintechs are also well-positioned to offer sellers a wide range of services, including accounting and inventory management, on ONDC.
Impact on Banks:
The ONDC network has garnered significant interest from financial institutions in the country. To foster a competitive e-commerce sector, nine institutions, including HDFC Bank, ICICI Bank, SBI, and Axis Bank, have increased their involvement in ONDC. These banks intend to extend loans to vendors, sellers, and other network participants by leveraging the synergies within the local network and the vast amount of transaction data. Banks without physical branches may consider utilizing ONDC to attract clients nationwide in smaller towns and rural areas. They can promote financial inclusion by offering alternative payment methods such as working capital finance, term loans, and merchant settlement transactions. In addition to providing much-needed solutions for OCEN, such as cash flow-based credit decision-making and lending models, banks are striving to offer these services through ONDC.
In conclusion, the ONDC project can potentially revolutionize India’s digital commerce sector by providing an open network protocol that fosters fair and widespread participation of sellers while facilitating increased digitization and low-cost national discoverability for MSMEs and small businesses. Moreover, the platform has significant opportunities for fintech and banks to explore new revenue streams and target a broader clientele, making financial services more accessible and affordable for micro, small, and medium enterprises. Overall, ONDC has the potential to drive increased interoperability, financial inclusion, and growth in India’s tech-driven economy.