Right when the world was marveling at how revolutionary UPI is, the government of India introduced another platform that is poised to change the way you shop online. The Open Network for Digital Commerce, or ONDC, is a blockchain-based platform that allows sellers, apps, websites, or any e-commerce platform to interact with a buyer.
ONDC was established by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Government of India. It will operate as a private non-profit company. What makes ONDC unique is that its neither an app nor software nor an intermediary. As its name goes, it’s an open network that facilitates open interchange and connections between online buyers and sellers.
The Inception of ONDC
The idea of ONDC was conceived in 2021 when DPIIT tasked a nine-member Advisory Council and The Quality Council of India to explore the potential of blockchain methodologies to bring domestic digital commerce under one umbrella. With an initial investment of around ₹10 crores from DPIIT, various small and medium size industries were invited to be a part of the pilot project.
By the second half of 2022, various public and private sector entities invested significantly in ONDC. The Ministry of Electronics and Information Technology promoted ONDC for e-commerce and logistics in rural areas. The pilot phase was launched in April 2022 in five cities- New Delhi, Bengaluru, Bhopal, Shillong, and Coimbatore.
The Need for ONDC
The e-commerce sector in India is expected to grow at a rapid pace in the near future. According to Grant Thornton, e-commerce in India is expected to be worth US$ 188 billion by 2025. This growth is mostly fuelled by the rise in usage of smartphones and growth in penetration of 4G and 5G networks. The e-commerce landscape in the country is, however, dominated by few players with Amazon and Flipkart making the most of the market share. According to a 2022 report by RedSeer, a market research firm, Flipkart achieved a 62% market share in terms of Gross Merchandise Value (GMV) — the total value of goods sold — compared to Amazon’s 26%.
While regional and small platforms such as trying to catch up with Flipkart and Amazon, the latter has been accused of eliminating the competition by coping products and rigging search results to promote its brands. Thus, ending the market monopolies of giant platforms and promoting fair business practices is one of the major objectives of ONDC.
Although digitization has reached most towns and cities of India, the traditional offline market is still the real deal in the country as online sales account for only a single digit 6.5% of the overall US$ 836 billion retail sector. Around 81.5% of the retail space is still occupied by the traditional retail sector. However, brick and motor businesses are losing the competition to online platforms that offer deep discounts to online buyers. Although shifting the traditional business to an online or hybrid channel seems an obvious path, local businesses usually lack the funding and infrastructure required to do so. Even businesses that manage to sell their products through e-commerce platforms are at the risk of manipulative search results. Amazon, in particular, has come under the radar for exploiting its vast trove of internal data to manufacture and promote its merchandise at the expense of other sellers.
ONDC is expected to address such unethical practices and the overall monopoly of a few giant e-commerce platforms. Through ONDC, every D2C brand, including big companies and small individual sellers with online storefronts on platforms like Dukaan, can take orders from customers, fulfill those orders, and ultimately receive payments.
ONDC is likely to digitize the value chain and standardize various operations involved in the retail sector. The platform will not only benefit sellers but also lead to significant savings on expenditure for consumers. With ONDC, one can compare the cost of various products on various platforms and decide to choose to buy on a platform of their choice. This will help do away with predatory prices and give access to different types of products that may not be available on other marketplace networks.
The Challenges for ONDC
ONDC is still in its early stages. One of the major challenges for the platform is acquiring data and algorithms of customer buying behavior from larger e-commerce players. ONDC is likely to lose its edge over already established e-commerce players if not enough e-commerce companies register on the platform. Even if big players like Amazon and Flipkart do join ONDC, they are likely to do so through a lite version of their apps and at the same time introduce premium subscription models on their original apps. Amazon already has a Prime subscription service which comes with a bundle of benefits such as one-day delivery and OTT content. In such a scenario, it will be a challenging task to boost traffic on ONDC.
ONDC will also have to set up robust technical support and grievance redressal systems to address various consumer and merchant issues. Established players have vast amounts of user data to predict consumer behavior. They also have an established technical support system. With consumers concerned more than ever about aftersales services, ONDC will have to focus on smooth and swift customer service.
Small businesses that join ONDC will have to face the onslaught of discounts and other offers that the big players give. Additionally, businesses on the platform must offer all kinds of payment methods to ensure that they don’t lose consumers on the checkout page. Liability is, as of yet, an open and unanswered concern in case of any issue regarding the quality of products or payment transactions.
The Road Ahead for ONDC
ONDC offers potential for local D2C brands to compete with big e-commerce companies and expand their customer base with quality products and competitive prices. Major retail stores are integrating with ONDC. Recently, SellerApp announced to onboard over 3,000 retail stores from Bengaluru by the end of August. Big e-commerce companies, including Amazon, are also integrating their logistics network and smart commerce services with ONDC. As of 24 April 2023, the platform achieved the milestone of 5,000 daily orders in food & beverages and grocery categories.
ONDC has reached major cities such as Delhi, Bengaluru, Coimbatore, Pune, Shillong, and Bhopal. In the near future, ONDC is poised to transform the e-commerce market across India. For sellers, it is likely to increase their chances of finding new customers and expanding their market share. For consumers, it is expected to offer a great user experience with access to a wide range of products.