How ONDC is changing the Indian ecommerce ?

What is ONDC?

?“Open Network for Digital Commerce” is the non-profit organization aimed at promoting open networks for all aspects of exchange of goods & services over digital or electronic network.

Need for ONDC:

The E-Retail penetration in India is 4.3% which is far low than major economies China (25%) and USA (22%). This is the case even when we have 2nd highest internet penetration globally (80 crore users).

Challenges in the current scenario

1.???? A single entity has full control over managing the entire operation of the E-commerce value chain.

2.???? Sellers too face the challenge of cost for being available on different platforms which leads to their shrinking margins.

3.???? Buyers get limited options to purchase from and buyers/sellers can only transact if they are on same platform.

How ONDC will solve this issue?

All buyers and sellers will be connected to a single platform i.e ONDC. Once the order is being placed the buyer has many options to select from various sellers, delivery partner and payment option of his/her choice. This will provide even level playing field for all E-commerce operators.

?ONDC points at cultivating open systems created on open-sourced strategy, utilizing open details and arrange conventions, and free of any stage.?

How does ONDC works:

ONDC is an advanced ecosystem that empowers smooth and interoperable online exchanges. Comparable to the UPI for instalments, ONDC gives open conventions that envelopes distinctive viewpoints of e-commerce for a streamlined trade of merchandise and administrations.

ONDC employs a set of APIs (Application Programming Interfacing), empowering distinctive e-commerce partners to coordinate and share information effectively. This permits the partners to get to a riches of information around client behaviour, items, and cost, making it simple to create educated choices.

APIs allow for the creation of new products and services, promoting innovation in e-commerce. They are used to build robust digital platforms like open registries and network gateways, facilitating seamless communication between service providers and consumers. ONDC empowers small retailers to integrate their businesses across various applications, standardizing operations like inventory management and cart handling. Consumers can easily find sellers and products through any compatible app, enhancing their purchasing options. ONDC also addresses transparency and data security concerns by providing a consolidated registry of online sellers for consumer verification.

Key Features & Benefits of ONDC:

1.???? It is designed to be scalable in order to handle large number of transactions, in Jan 2024 it crossed 3 million retail purchases for first time.

2.???? It is fair & transparent for all traders and vendors regardless of their size which is not the case currently with E-commerce giants.

3.???? It is easy to join for both buyers and sellers with limited requirements and easy to use and operate.

How ONDC addresses the roadblocks in Indian e-commerce and provides solutions to these challenges:

1.? Regulatory Challenges:

ONDC simplifies compliance with regulatory frameworks by providing a standardized and transparent platform for digital commerce. By adhering to ONDC's guidelines and protocols, businesses can ensure compliance with data protection and privacy laws while promoting fair competition in the e-commerce ecosystem.

2.? Technical Interoperability:

ONDC eliminates the complexity of integrating different digital platforms and systems by offering a unified and interoperable network. Businesses no longer need to navigate diverse technical standards and protocols, as ONDC ensures seamless communication among various entities within the open network.

3.? Security and Fraud Prevention:

ONDC enhances security measures, encryption protocols, and user authentication mechanisms to safeguard against cyberattacks, data breaches, and fraud. By leveraging robust security features built into the ONDC platform, businesses can mitigate risks and ensure the integrity of transactions conducted through the network.

4.? Stakeholder Cooperation:

ONDC facilitates collaboration among diverse stakeholders by aligning their interests and business models within the open network. Through effective communication and partnership initiatives, ONDC fosters cooperation among e-commerce companies, payment gateways, banks, and government agencies, driving collective progress in the digital commerce space.

5.? Infrastructure and Connectivity:

ONDC partners are committed to overcoming infrastructural limitations by improving internet connectivity and accessibility, particularly in remote areas. By providing affordable access to reliable internet services, ONDC aims to enhance connectivity and ensure widespread adoption of digital commerce across India.

6.? Scalability:

ONDC's open network infrastructure is designed to scale seamlessly with the growing user base and transaction volume. By leveraging scalable technologies and flexible architecture, ONDC can handle increased traffic and transactions without compromising performance, ensuring a smooth and efficient digital commerce experience for all users.

7.? User Trust and Adoption:

ONDC prioritizes user trust and adoption by implementing robust security measures, encryption protocols, and user authentication mechanisms within the platform. By ensuring transparent and secure transactions, ONDC builds confidence among users and encourages widespread adoption, ultimately driving the platform's success and fostering a thriving digital commerce ecosystem in India.

How will ONDC disrupt the Indian E-commerce market?

How ONDC will disrupt the Indian commerce market for sellers, buyers, retailers, logistics companies, and other stakeholders:

1.? For Sellers:

·?????? Level Playing Field:? Just as UPI empowered small banks and fintech startups to compete with established financial institutions, ONDC will enable small sellers to compete with e-commerce giants like Amazon and Flipkart. For example, a local handicrafts store in a rural area can now reach customers across the country through ONDC without worrying about hefty commissions or advertising costs.

·?????? Direct Connections:? Similar to how social media platforms like Instagram enable direct interaction between influencers and their followers, ONDC will foster direct connections between sellers and buyers. For instance, a boutique clothing brand can engage directly with customers, solicit feedback, and offer personalized recommendations through the ONDC platform.

·?????? Streamlined Operations:? Just as cloud-based platforms like Shopify revolutionized e-commerce by simplifying website development and management, ONDC will streamline operations for sellers. For instance, a small electronics manufacturer can easily manage inventory, process orders, and track shipments through ONDC's integrated platform without the need for complex backend systems.

2.? For Buyers:

·?????? Enhanced Accessibility:? Similar to how search engines like Google provide access to a vast array of information, ONDC will offer buyers access to a wide range of products from various sellers on a single platform. For example, a customer looking for handmade jewellery can explore a diverse selection of options from different artisans through ONDC.

·?????? Personalized Experience:? Just as streaming services like Netflix use algorithms to recommend personalized content, ONDC will provide buyers with tailored product recommendations based on their preferences and browsing history. For instance, a user interested in organic skincare products may receive recommendations for natural beauty brands on the ONDC platform.

·?????? Transparent Transactions:? Similar to how blockchain technology ensures transparency and security in cryptocurrency transactions, ONDC will use Distributed Ledger Technology (DLT) to record transactions securely. For example, a buyer purchasing organic groceries through ONDC can trust that the transaction history is immutable and transparent, reducing the risk of fraud or counterfeit products.

3.? For Retailers:

·?????? Expanded Reach:? Just as e-commerce platforms like Shopify enable retailers to reach customers globally, ONDC will help retailers expand their reach beyond traditional markets. For example, a boutique furniture store can showcase its products to customers across India through ONDC, tapping into new customer segments and geographical regions.

·?????? Cost-Effective Solutions:? Similar to how Software as a Service (SaaS) models like Salesforce revolutionized software delivery, ONDC will offer cost-effective solutions for retailers to establish an online presence. For example, a small grocery store can set up a digital storefront on ONDC without the need for expensive website development or maintenance.

·?????? Data-Driven Insights:? Just as big data analytics platforms like Google Analytics provide insights into website traffic and user behaviour, ONDC will offer retailers valuable insights into consumer preferences and market trends. For example, a fashion retailer can analyse sales data on ONDC to identify popular trends and adjust inventory, accordingly, improving sales performance and customer satisfaction.

4.? For Logistics Companies:

·?????? Efficient Supply Chain:? Similar to how ride-hailing platforms like Uber optimize transportation networks, ONDC will optimize supply chain management for logistics companies. For example, a courier service can leverage ONDC's network to optimize route planning and reduce delivery times, improving operational efficiency and customer satisfaction.

·?????? Collaborative Partnerships:? Just as collaborative consumption platforms like Airbnb facilitate partnerships between hosts and guests, ONDC will facilitate collaborative partnerships between logistics companies and sellers. For example, a logistics provider can partner with local retailers to offer same-day delivery services through ONDC, meeting the evolving needs of sellers and buyers effectively.

·?????? Data-Driven Decision Making:? Similar to how IoT devices enable predictive maintenance and asset optimization in logistics operations, ONDC will enable logistics companies to make data-driven decisions. For example, a delivery company can use real-time tracking data from ONDC to optimize fleet management and allocate resources more efficiently, improving overall service quality and reliability.

ONDC's disruptive potential lies in its ability to empower stakeholders across the e-commerce ecosystem by democratizing access, fostering direct connections, streamlining operations, and enabling data-driven decision-making.

?How technology plays a crucial role in the success of ONDC and how retailers can leverage technology to maximize the potential of this digital commerce platform.

Technology plays a pivotal role in the success of the Open Network for Digital Commerce (ONDC) by providing the necessary infrastructure, tools, and capabilities to facilitate seamless transactions, enhance user experience, and drive innovation. Here's how technology contributes to ONDC's success and how retailers can leverage it to maximize the platform's potential:

1.? Infrastructure and Connectivity:? Technology enables the creation of a robust digital infrastructure that supports the ONDC platform, ensuring reliable connectivity and accessibility for users across diverse geographical locations. Retailers can leverage technology to optimize their network connectivity, ensuring uninterrupted access to the ONDC platform and maximizing their reach to potential customers.

2.? Blockchain and Distributed Ledger Technology (DLT):? The use of blockchain and DLT ensures the security, transparency, and immutability of transactions on the ONDC platform. Retailers can leverage this technology to build trust among customers by providing transparent records of product authenticity, supply chain transparency, and secure payment processing.

3.? Data Analytics and Insights:? Technology-driven data analytics tools enable retailers to gain valuable insights into customer behaviour, preferences, and market trends. By analysing data collected from ONDC transactions, retailers can personalize marketing strategies, optimize product offerings, and enhance customer engagement to maximize sales and revenue.

4.? Mobile and Digital Payments:? With the proliferation of smartphones and digital payment solutions, technology enables seamless and secure payment transactions on the ONDC platform. Retailers can leverage digital payment integrations to offer customers a convenient and frictionless shopping experience, reducing payment processing times and enhancing customer satisfaction.

5.? Artificial Intelligence (AI) and Machine Learning (ML):? AI and ML algorithms power intelligent recommendation engines, personalized marketing campaigns, and predictive analytics on the ONDC platform. Retailers can leverage AI-driven insights to target specific customer segments, optimize pricing strategies, and tailor product recommendations to individual preferences, thereby driving sales and fostering customer loyalty.

6.? Cloud Computing and Scalability:? Cloud computing infrastructure provides scalability, flexibility, and high availability for the ONDC platform, allowing retailers to scale their operations seamlessly to meet growing demand. Retailers can leverage cloud-based solutions to streamline inventory management, optimize supply chain logistics, and improve overall operational efficiency on the ONDC platform.

7.? Cybersecurity and Data Privacy:? Technology plays a critical role in ensuring the cybersecurity and data privacy of ONDC users and retailers. Implementing robust cybersecurity measures, encryption protocols, and identity verification mechanisms safeguards sensitive data and prevents unauthorized access, instilling trust, and confidence in the platform's security among retailers and customers alike.

Technology serves as the backbone of the ONDC platform, enabling retailers to harness its full potential by leveraging advanced tools and capabilities to drive growth, innovation, and competitiveness in the digital commerce landscape. By embracing technology-driven strategies, retailers can position themselves for success on the ONDC platform and capitalize on the vast opportunities it offers for expansion and market reach.

Potential challenges that retailers may face in transitioning to ONDC and discuss the opportunities and innovations that can arise from embracing this new digital ecosystem.

?Let's break down the challenges and opportunities faced by different stakeholders involved in transitioning or working on the ONDC platform:?

1.? Sellers:

?Challenges:

·?????? Inventory Management: Many sellers face difficulties in accurately updating and managing their inventory listings on the ONDC platform, leading to discrepancies between listed and available products.

·?????? Payment Reconciliation: Sellers may encounter challenges in reconciling payments received from buyers through the platform, leading to financial disputes and delays in receiving payments.

·?????? Compliance: Adapting to the regulatory and compliance requirements of the ONDC platform, including data privacy and consumer protection laws, can pose challenges for sellers.

Opportunities and Innovations:

·?????? Access to Wider Market: ONDC provides sellers with access to a broader market base, allowing them to reach customers beyond their traditional reach.

·?????? Enhanced Visibility: Sellers can leverage the ONDC platform to enhance their visibility and brand presence, thereby attracting new customers and driving sales.

·?????? Data Analytics: By harnessing data analytics tools offered by the ONDC platform, sellers can gain insights into consumer behavior, market trends, and product performance, enabling them to make informed business decisions and optimize their offerings.

2.? Buyers:

Challenges:

·?????? Trust and Reliability: Buyers may face challenges in trusting the ONDC platform due to concerns related to product quality, delivery reliability, and frauds.

·?????? User Experience: The user interface and experience of the ONDC platform may vary, impacting the ease of navigation, product discovery, and checkout process for buyers.

·?????? Security and Privacy: Ensuring the security and privacy of personal and financial data shared on the ONDC platform is essential to building trust among buyers.

Opportunities and Innovations:

·?????? Variety and Choice: ONDC offers buyers a wide variety of products and services from different sellers, providing them with more options and choices.

·?????? Competitive Pricing: Increased competition among sellers on the ONDC platform can lead to competitive pricing, discounts, and offers, benefiting buyers.

·?????? Convenience: The convenience of browsing, comparing, and purchasing products online through the ONDC platform enhances the overall shopping experience for buyers.

3.? Logistics Companies:

Challenges:

·?????? Last-Mile Delivery: Ensuring timely and efficient last-mile delivery of products to buyers' doorstep remains a significant challenge for logistics companies.

·?????? Infrastructure Constraints: Inadequate infrastructure, including transportation networks and warehousing facilities, can impede the smooth functioning of logistics operations.

·?????? Integration with ONDC: Logistics companies may face challenges in integrating their systems and processes with the ONDC platform, leading to compatibility issues and operational inefficiencies.

Opportunities and Innovations:

·?????? Optimization Technologies: Logistics companies can leverage technology solutions such as route optimization algorithms, real-time tracking systems, and IoT-enabled devices to enhance the efficiency and reliability of delivery operations.

·?????? Collaborative Partnerships: Partnering with other stakeholders on the ONDC platform, including sellers and payment gateways, can facilitate seamless coordination and collaboration in logistics operations.

·?????? Value-Added Services: Offering value-added services such as express delivery options, package customization, and eco-friendly packaging can differentiate logistics companies and attract customers.

4.? Government and Regulatory Authorities:

Challenges:

·?????? Regulatory Compliance: Ensuring compliance with existing regulations and establishing new regulatory frameworks for the ONDC platform poses challenges for government and regulatory authorities.

·?????? Data Privacy and Security: Safeguarding consumer data privacy and security while promoting innovation and growth on the ONDC platform requires careful balancing of regulatory requirements.

·?????? Enforcement Mechanisms: Developing effective enforcement mechanisms to address issues such as fraud, counterfeit products, and consumer grievances on the ONDC platform is essential for maintaining trust and integrity.

Opportunities and Innovations:

·?????? Policy Innovation: Governments can seize the opportunity presented by the ONDC platform to introduce innovative policies and regulations that foster competition, consumer protection, and digital inclusion.

·?????? Collaboration Platforms: Establishing collaborative platforms and forums involving government agencies, industry stakeholders, and consumer advocacy groups can facilitate dialogue, knowledge sharing, and policy development related to the ONDC ecosystem.

·?????? Data Governance Frameworks: Developing robust data governance frameworks and standards for data collection, storage, and usage on the ONDC platform can enhance transparency, accountability, and trust among stakeholders.

By addressing these challenges and leveraging the opportunities effectively, stakeholders can contribute to the sustainable growth and success of the ONDC initiative.

Conclusion

In our discussion, we explored the Open Network for Digital Commerce (ONDC), an initiative poised to revolutionize India's e-commerce landscape. We highlighted ONDC's unique features, including tailored solutions for Indian consumers, open specifications, and network protocols, and simplified online store setup for small businesses. We discussed its potential to disrupt e-commerce akin to UPI's impact on digital payments and its focus on user experience and data security. Additionally, we examined challenges faced by stakeholders like sellers, buyers, and logistics companies, along with opportunities for innovation and collaboration. Embracing ONDC offers a promising avenue to address current e-commerce challenges, foster fair competition, and promote economic growth. With its potential to lower prices, increase choice, and enhance convenience, ONDC presents an opportunity to build a more inclusive and efficient digital commerce ecosystem in India, benefiting both businesses and consumers alike.

Co-author: Vrushabh Walke

Gaurav Singh (IIM Bangalore'23) & Vrushabh Walke (IIM Bangalore'23) are Business Consultants under the Strategic Leadership Program at TCS. They primarily work in the Consumer Business Group Vertical (Retail, CPG & TTH) for the IMEA Geography.

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