ONDC Explained - What is it? How does it work? | TechTree.com

ONDC Explained - What is it? How does it work?

It is a network and not a platform that government is building to democratize eCommerce

 

The Open Network for Digital Commerce (ONDC) was launched in April of 2022 as part of the government's initiative of creating the digital infrastructure that would drive future economic growth. This is the third project after the unique identity program (Aadhar) and the interoperability of payment gateways (UPI). 

Contrary to popular belief, the government had no intention of placing ONDC as an alternative to the global giants such as Amazon and the Walmart-owned Flipkart, though such an impact cannot be completely ruled out. In fact, the ONDC would provide a level playing field to all retailers in India by digitizing them and adding them to the network, a process that could have some impact on the bigger players in the market. 

In fact, some of these big ecommerce players are now keen to join the ONDC network. In fact, Snapdeal is already on board and we are hearing that Amazon, Reliance Retail and Flipkart could be there too. Close on their heels are fulfillment agencies such as Shiprocket and Delhivery getting on board. 

 

What exactly is ONDC?

The ONDC is a private not-for-profit company established in April 2022 by the Department for Promotion of Industry and Internal Trade of the central government. It's brief is to develop open networks for e-commerce which essentially means creating a set of protocols so that every company in the country or abroad can standardize their structure with a view to establishing interoperability. 

Such an open network would allow any entrepreneur to benefit from the deepening eCommerce footprint across India, right from food and grocery to travel, education, and a host of other services that pervades our daily lives. It's a network where monopolies will end, but business will grow as would customer choices.

Imagine if one were looking for a particular kitchen appliance or piece of clothing or furniture, as a user one would see both Amazon and Flipkart listings. However, alongside these one would also see the listings from a local store in the vicinity - possibly one that is known to the customer and where delivery could happen within the hour.

 

How does the ONDC system work? 

As discussed above, the idea is to create new digital entrepreneurship while curtailing monopoly in the digital landscape. Companies such as eSamudaay are already on board helping the undigitized traders, micro entrepreneurs and small businesses digitize their offerings. Once these appear on the ONDC network, users will have more options to choose from. 

Besides the sellers network, the ONDC platform will also have a network of delivery agencies such as Shiprocket, Delhivery and possibly even Indian Posts soon. In addition, payment apps such as PayTM are already on board and others are waiting to join up. This would ensure a seamless experience for the buyers and also benefit local sellers over centralized ones as those would show up alongside similar listings from the big players. 

 

Where will ONDC be present? 

Since the official launch in April 2022, the ONDC pilot program has expanded first to the five cities of New Delhi, Bengaluru, Coimbatore, Bhopal and Shillong and has now spread to more than twenty additional destinations. The aim is to cover 75 cities by mid-August representing the 75 years of India's Independence, being celebrated as Amrit Mahotsav. 

Given that ONDC is just a network working on establishing protocols, they are inviting all sorts of digital entities to get on board. While the likes of eSamudaay provide the backend tools to help small businesses go digital, others are providing logistics services while still others are coming up with payment options. 

Besides making the pricing mechanism more transparent, the ONDC protocols will also ensure that predatory pricing in high-margin and high-value products are a thing of the past. In this way, it would provide a level playing field for the local kirana shop against Amazon's grocery delivery or the likes of Blinkit and other centralized businesses. 

 

What does ONDC aim to achieve? 

Given that it is a not-for-profit organization, there are no financial goals as such but ONDC does have a target of reaching a quarter of India's consumer purchases within two years. It seeks to bring more people into the eCommerce footprint, which today maps just about 7% of India's population and of which Amazon and Flipkart own a lion's share. 

In terms of customers, ONDC expects 900 million buyers onboard once it manages to onboard 1.2 million sellers into the network. It aims to achieve a gross merchandise value of 48 billion dollars though in recent times, the key officials at ONDC have expressed the hope that this number could be an under-estimation, given the penetration of 4G and smartphones. 

Though ONDC has reiterated time and again that it wasn't set up to take on Amazon and Flipkart, the fact remains that its focus would be on small businesses with rural consumers as its target base. In some ways, this network would be akin to a mall with a 1000 gates or limiting it to just two gates. Or, one could also think of it as a highway set up by the government around which stores can come up with their own products and services. 

 

Who all are on board ONDC thus far?

The first eCommerce brand to sign up with ONDC is Snapdeal though Flipkart's logistic arm Ekart and Reliance Digital-backed Dunzo have already integrated for logistics services. In addition to Paytm, PhonePe is also said to be joining the network while the likes of SBI, Axis Bank, ICICI, HDFC Bank, Kotak and IDFC are also holding discussions. 

Of course, it is not clear how many payment enablers could be part of the system, but ONDC itself does not limit this number. There is a high possibility that the banks would be discussing things beyond enabling payments, given that such a network would be ideal for selling their cards, loans and other allied services. 


TAGS: ONDC, esamudaay, Amazon, Flipkart

 
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