Open Network Digital Commerce (ONDC) Platform will democratise e-Commerce in India :

The Indian e-Commerce Industry is valued at around ~ 40 billion. The industry is still in its nascent stage. However, Indian digital consumerism is growing at a scorching pace, and as per government estimates, the market will reach $200 billion by 2027.

India’s highly attractive demographic dividend with an average age of 29 makes the country one of the most suitable e-commerce markets in the world.

India is building an Open Network Digital Commerce interface that can herald a new beginning for the Indian retail industry, which is valued at around $1 trillion.

For the uninitiated, ONDC is a platform-agnostic e-commerce system, wherein all kinds of vendors, sellers, and merchants (big and small) can display their offerings. With ONDC, India envisions a truly decentralized, coherent, and integrated system for e-commerce, which can be used by everyone.

It is an initiative aimed at promoting open networks for all aspects of exchange of goods and services over digital or electronic networks. ONDC is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.?

?ONDC is somewhat similar to the Unified Payment Interface (UPI), which has enabled everyone with a bank account to utilize mobile payments irrespective of whether they use a particular app or not. Similarly, with ONDC, everyone can use the app, as long as they are part of the system. Vendors would not be required to simultaneously join numerous different platforms. Similarly, even if they do not have their own e-commerce setup, they can sell online.

How does ONDC work?

The ONDC platform lies in the middle of the interfaces hosting the buyers and the sellers. So far, the buyer side interface is being hosted by Paytm, whereas the seller side interface is being hosted by other players like GoFrugal, etc.

When a buyer searches for an item on the Paytm app, from where ONDC has gone live, the app will connect to the ONDC platform, which will connect it to seller side interfaces that will list all the companies from where you can buy the particular item.On ONDC, there will be several other backend partners such as logistics service providers, enterprise resource planners, e-commerce store hosting service providers, etc.

To explain it further, let us suppose someone is searching for scented candles on Flipkart. While doing this, they can also view similar products from other platforms such Nykaa, Shoppers stop, etc. (provided these platforms are registered with ONDC)

As China already has a lot of indigenously developed e-commerce giants, India presently is a natural favorite for most of the global tech giants including Amazon, Walmart, Google, Meta, etc. Most of the major international PE players such as GIC, ADIA, CCPIB, Sequoia, and Warburg Pincus, are betting big on the Indian market.?

Amidst such a positive turn of events, the recent move to develop an exhaustive and democratic system such as ONDC can give a further positive thrust to India’s e-commerce ambition. It can reshape the entire industry.

As per the government estimates, ONDC will be deployed in 100 Indian cities by October 2022. It will directly positively impact 30 million sellers and 10 million vendors. It will also help the buyers by giving them a more democratized digital platform and finding better bargains and options.

?ONDC’s reach will be far and wide. It would not just be limited to general retail, grocery, etc. It can also entail visible shifts in lifestyle retail in India. India’s lifestyle retail is sized at around ~ $120 billion. This includes footwear and apparel, small appliances, fashion, and personal care, home décor and ambiance products, etc.

Digital commerce comprises around 6-7 percent of the overall lifestyle retail segment. Nevertheless, like other categories, it is growing incessantly and will reach ~ $40 billion in the next 3-5 years.

ONDC can give a positive push to the overall lifestyle segment. Like other segments, even the lifestyle segment is run by value-driven and price-conscious customers, which roughly comprise half of the overall market. The term ‘affordable luxury’ is quite popular in India, where buyers seek top-quality products but at a reasonable price.

?The ONDC will unlock new opportunities for mid-sized vendors of lifestyle products and help them reach a larger audience. Likewise, it will spur faster digitization for vendors that are mostly relying on the offline model.

Another benefit might be getting away with the listing fees. Currently, getting listed with big horizontal players requires a huge amount of listing fees. Once ONDC becomes operational, it will save retailers from such large fees and the same amount can be channelized towards marketing, operations, and other activities. Likewise, it can also be passed to the customer, thereby accelerating the demand.

What are the challenges ONDC aims to address?

An ONDC strategy paper published earlier this year has flagged the rising dominance of global players in India’s e-commerce ecosystem, pointing out that the large quantum of investment required to build competitors to the integrated solutions offered by the big players has become an entry barrier for digital marketplaces.

It also flagged the inability of marketplace sellers to move out of the platform ecosystem, given that the value created by these small players is stored with the larger platforms. With this in mind, ONDC aims to transform the marketplace ecosystem from an operator-driven platform-centric model to a facilitator-driven interoperable decentralised network.

Microsoft getting on board the the ONDC wagon means the project gets its first international marquee name ahead of its Bengaluru launch.

A number of participants are currently live on the ONDC network, offering a number of services in the e-commerce supply chain such as buying, selling and offering logistics services. Among those that are live are?Paytm which has joined the platform as a buyer, and Reliance-backed Dunzo, which is offering logistics services for hyperlocal deliverie

Companies like Kotak, PhonePe, Zoho and Snapdeal are in the “advanced stage of development”, according to the ONDC website.

In May this year, the Department for Promotion of Industry and Internal Trade (DPIIT) went live with a test run of ONDC in cities like?Delhi-NCR, Bengaluru, Coimbatore,?Bhopal and Shillong where it plans to onboard 150 sellers.?

What does it mean for online buyers?

ONDC is being seen as the UPI-moment for the e-commerce market, and its whole claimed value proposition lies as “democratising” digital commerce, taking it away from the clutches of a handful of deep-pocketed companies, as is the case currently – a number of sellers can offer their goods and services on the network which could be accessed from different platforms, with the delivery and payments infrastructure being handled by different companies.