What Is ONDC Lending? An In-Depth Look at How ONDC Lending Functions

ONDC (Open Network for Digital Commerce) is transforming India's digital economy and reshaping the future of e-commerce. If you're a business owner, tech enthusiast, or just curious about what's next, understanding ONDC is essential.

Beyond e-commerce, ONDC is poised to revolutionize digital lending in India. As the digital lending landscape grows, ONDC offers a powerful platform to streamline access to loans, making it easier and faster for small businesses and underserved communities to secure financing.

What Financial Services Can You Access Through the ONDC Platform?

ONDC (Open Network for Digital Commerce) is not just redefining e-commerce in India; it’s also expanding access to essential financial services nationwide. Here’s a look at the financial offerings available through the ONDC platform:

1. Digital Banking Solutions

ONDC partners with leading banks and financial institutions to provide a seamless digital banking experience.

• Effortless Account Management: Access multiple bank accounts, view balances, check transaction histories, and manage finances—all in one place, ideal for small businesses and entrepreneurs.
• Secure Fund Transfers: Transfer money easily across banking networks using IMPS, NEFT, or RTGS, enhancing financial flexibility.
• Quick Bill Payments and Recharges: Pay utility bills or recharge mobiles directly from your bank account with a simple, user-friendly interface.

2. Access to Lending and Credit Services

ONDC simplifies access to various lending and credit options, empowering individuals and small businesses to secure funding more easily.

• Small Business Loans: A streamlined loan application process for business needs, including working capital and expansion, with fast fund disbursement.
• Microloans for Entrepreneurs: ONDC supports access to microloans, ideal for small businesses and startups requiring smaller amounts of capital.
• Credit Scoring and Improvement: Access credit scores, reports, and tools to help improve your credit profile and qualify for better loan terms.

ONDC Lending Explained: A Step-by-Step Guide to Its Operation

Digital lending in India is undergoing a significant transformation, rapidly gaining traction alongside traditional lending methods. Although still emerging compared to conventional practices, digital lending is expanding quickly and is poised to redefine the financial landscape.

From FY17 to FY20, digital disbursements grew over 12 times, highlighting the increasing demand for online borrowing solutions. This surge is where the Open Network for Digital Commerce (ONDC) steps in, offering a cutting-edge platform that can drive the growth of digital lending across India.

According to a report (Source:EY), Projections for the digital lending sector show an impressive upward trend and :

It is estimated that by FY26, total digital disbursements could exceed INR 47.4 lakh crore

In FY22, digital lending in India reached approximately ?21.6 lakh crore, reflecting a strong Compound Annual Growth Rate (CAGR) of 22%.

ONDC is thus creating new opportunities in financial services, particularly in lending, by fostering an interconnected ecosystem where buyers, sellers, fintechs, and lenders can seamlessly collaborate and innovate.

How ONDC Lending Works: Unpacking The Process

Step 1: Onboarding Lenders and Borrowers to ONDC

The first step in ONDC lending is to onboard both lenders (banks, NBFCs, fintechs) and borrowers (MSMEs , consumers, and small businesses) to the platform. ONDC creates a level playing field for all participants in the digital ecosystem, ensuring broader access to lending opportunities.

• Lender Onboarding: Lenders integrate their systems with ONDC’s open protocols to offer credit products directly, reaching a wider audience across various e-commerce platforms, apps, and marketplaces.
• Borrower Onboarding: Borrowers—whether businesses or individuals—join the network through ONDC-enabled platforms like B2B/B2C marketplaces or buyer apps, gaining access to financial services tailored to their needs.

Step 2: Access to Diverse Borrower Segments and New Lending Channels

Lenders on the ONDC platform can connect with various borrower segments, including MSMEs, retailers, tech startups, and B2B/B2C buyers, expanding their market reach.

• New Credit Channels: ONDC opens new lending channels such as credit marketplaces, invoice financing apps, and buyer apps, allowing lenders to connect directly with those seeking loans or other financial products.
• Customized Lending Products: Lenders can offer tailored financial products, from short-term loans to inventory financing, meeting the unique needs of different borrower segments.

Step 3: Leveraging ONDC’s Data for Better Credit Decisions

ONDC provides lenders with rich data on transaction history, sales, and financial behavior, enhancing credit underwriting processes.

• Data-Driven Risk Assessment: Lenders can access real-time data, such as sales performance and cash flow, for accurate risk evaluation, reducing default rates and improving loan approvals.
• Advanced Credit Scoring: By incorporating non-traditional data points—like online sales, payment history, and customer reviews—lenders can build more comprehensive credit scoring models.

Step 4: Streamlining Loan Application and Approval

ONDC streamlines the loan application and approval process, making it faster and more efficient.

• Simplified Applications: Borrower data can pre-fill loan forms, reducing application time and improving user experience.
• Faster Approvals and Disbursements: Real-time data and automation tools speed up loan approvals, while digital verification and e-signatures ensure secure and swift disbursements.

Step 5: Enhancing Borrower Engagement and Relationship Management

ONDC helps lenders build strong borrower relationships through personalized engagement.

• Tailored Communication: Lenders use detailed borrower data to create targeted communication for collections, cross-selling, and upselling.
• Customer Insights: Data analysis offers insights into borrower behavior, enabling lenders to provide relevant offers and services.

Step 6: Continuous Improvement with Feedback and Data Analysis

ONDC promotes continuous improvement by gathering feedback and analyzing data to refine the lending process.

• Borrower Feedback: Collect feedback to enhance loan products and customer service.
• Strategic Analytics: Analyze data to identify trends and improve lending strategies, such as adjusting credit criteria or developing new products.