ONDC: the future is right here, we must be ready

By Team IVCA

From being a challenger to the traditional brick-and-mortar stores to redefining the way consumers spend money on a global scale to even influencing their consumption habits, e-commerce’s transformative potential needs no reminder. Until now, a couple of global Internet-based enterprises retained their dominant positions in this rapidly-evolving e-commerce marketplace.

It’s interesting that a new player, Open Network for Digital Commerce (ONDC), has arrived on the scene, offering an open-access digital ecosystem to connect buyers and sellers, and creating a level-playing field on a non-profit platform. It has democratised and decentralised the process of e-commerce such that buyers don’t have to rely on large platforms to trade and sellers can follow a standardised on-boarding process. In short, it serves as a digital highway, much like the Unified Payments Interface (UPI) that facilitates payments without any external intervention.

Such a neutral platform that will set procedures for price discovery and vendor match on an open source-basis was long due. A platform that will hopefully end predatory pricing and preferential treatment, take care of GST slips, besides bringing many unorganised players together. An inclusive and accessible model for consumers whose time had perhaps arrived during the pandemic when the world was in crying need for supply essentials.

Backed by the Department for Promotion of Industry and Internal Trade, this venture has naturally attracted a lot of interest among investors, with the SBI (State Bank of India), Axis Bank, Bank of Baroda, PNB (Punjab National Bank) and ICICI bank among its list of shareholders. SIDBI too has invested Rs10 crore for a 7.84% stake in it.

Very recently, in an event organised by Indian Venture and Alternate Capital Association (IVCA) on “Operationalising ONDC with IVCA”, some interesting aspects were brought out in the discussion. The basic question for every participant and members is why investors believe that ONDC is another e-commerce boom in the offing. The answer could be gauged by numbers. It’s reported that ONDC will sign 900 million buyers and 1.2 million sellers over five years and expand its reach to 100 cities in 2022. Market analysts have projected that it will contribute to the exponential rise of India’s e-commerce base, from 9 crores to 30-plus crores, drive the country’s Gross Merchandise Value from 4.5 lakh Crore to 7.5 lakh crore, and create millions of jobs.

According to government estimates, India’s e-commerce market, worth more than $55 billion in Gross Merchandise Value last year, is poised to grow to $350 billion by the end of this decade, thanks to the competitive scenario created by this new entrant. Alert investors needn’t be told that this is a unique opportunity in ages to be frontline players in the e-commerce space which, with the emergence of ONDC, is touted to grow more than four fold.

What furthers its allure for investors is the amended income-tax rules that gives tax exemption to payment system providers under section 11 of the Income Tax Act, should they invest in it.

It must be mentioned here this platform’s appeal also lies in touching every stratum of society. Not all self-employed people at Kirana shops can access e-commerce platforms or make their products visible. According to conservative estimates, neighbourhood provision stores comprise 80% of the retail sector but remain digitally excluded. ONDC could well be the answer to the Kirana stores’ needs.

And lest forgotten, the National Consumer Helpline continues to record grievances of delayed deliveries, damaged products, lack of refunds and breach of data privacy, essentially severe gaps in e-commerce quality checks that this UPI of e-commerce is expected to resolve.

The initial challenges are inevitable. Any e-commerce behemoth is susceptible to cyber threat. While ONDC has adopted the Public-Private-Partnership model, a strong execution of PPP strategies and more participation of private players is necessary to have the technological sophistication and specific skill sets to counter data-privacy threat.

As of now, it’s operating under the Consumer Protection Act. A solid legal framework and strong regulations are paramount.

It’s rightly held that supply-chain management systems with insufficient manpower, real-time settlements, and prompt customer service across vendors could be the other challenges of this open network. And how this government-backed startup offers an easy-to-use UX (User Experience) will largely determine its effectiveness. It’s undeniable that the other e-commerce majors have the kind of digital dominance that is envied and must be emulated.

To summarise, let’s remember what ONDC stands for. As Mr. Koshy, CEO ONDC, rightly highlighted in the IVCA event, this one-of-a-kind initiative is not an app and certainly no solution provider. Solutions will come from entrepreneurs. What it does – and exceedingly well – is provide connection and market links to buyers and sellers.

Finally, we’ve a platform that gives consumers more options and controls, lowers operating costs, ends digital monopolies in the e-commerce space, empowers small businesses, ensures they aren’t arm-twisted by e-commerce Goliaths into paying high premiums, and standardises operations.

It wouldn’t be an overstatement to say that ONDC is India’s gift to the world at the next G20 summit. A rare one at that.