ONDC: Democratising the E-Commerce Industry

Introduction

“Digital commerce” is constantly improving the global business environment by reducing the distance between businesses and consumers. During Covid-19, digital commerce flourished the most. The retail sector of digital commerce experienced tremendous growth worldwide in its share of total retail sales i.e. from 16% in 2019 to 19% in 2020.¹ Several factors contributed to this growth but the sharp rise in business-to-consumer (B2C) sales impacted the most.

In the past few years, India has also seen significant growth in its digital commerce industry. In 2020, there were 140 million e-retail shoppers, making it the third largest shopper’s base globally.² By 2030, this number is expected to grow exponentially with the addition of 370 million Gen-Z to the list.³ However, Covid-19 burst this bubble of expectations because kiranas (hyperlocal grocery stores), the largest shareholder of the retail sector in India collapsed and led to a breakdown of the supply chain throughout the country. The biggest contributor to this breakdown was the non-digitalisation of these stores. Department for Promotion of Industry and Internal Trade (DPIIT) in response to this breakdown consulted with various ministries and after being inspired by the large-scale schemes such as Unified Payments Interface (UPI) and Internet Message Access Protocol (IMAP), envisioned the “Open Network for Digital Commerce” (ONDC). Recently, Microsoft became the first big tech to join ONDC.⁴ Through this blog, the author seeks to explain why the ONDC is important for the growth of the e-commerce market in India and how could it overcome the challenges faced by it during its implementation.

Open Network for Digital Commerce (ONDC): The concept

ONDC is an open-source network for digital commerce which intends to “democratise the digital commerce”⁵ by carving a level-playing field for the e-commerce giants and the small sellers (kiranas). It is looked upon as the UPI for e-commerce⁶ having the capability to fuel the growth of the e-commerce market in India. In the ONDC network, sellers can voluntarily choose to display their products and services throughout the platforms and apps which have joined the same.

It proposes a decentralised network model, an alternative to the existing platform-centric model. As of now the sellers and buyers have to be on the same platform or application for a business transaction. However, this open network will enable the business transaction between a seller and a buyer on the platform or application of their choice. One might think about how exactly this network is going to achieve this feat. For this, we need to understand the working of ONDC.

In a platform-centric model, the platform manages everything right from the customer onboarding, purchase of the order, delivery of the order and grievance redressal (i.e. return, replace, etc.). ONDC would rather unpack this complex system into several micro-services to be managed by different platforms or applications. Following are the components responsible for the smooth functioning of the model (network):

1. Adaptor interface: APIs based on open-source interoperable specifications (Beckn Protocol).⁷

2. Seller-side applications: Specific applications for the sellers to register themselves for listing their catalogue of goods and services. Currently, eSamudaay, Gofrugal, Digii, SellerApp and GrowthFalcons have joined the network as seller applications.

3. Buyer-side applications: Specific applications for the buyers to discover the goods and services of the sellers who have listed them on seller-side applications. The transaction would take place here. As of now the only platform to join the network as a buyer application is Paytm.

4. Open registries: Application(s) that are responsible for listing down all the platforms that have joined ONDC as well as network policies and others.

5. Gateway: Application(s) that are responsible for communicating between the seller applications and the buyer application in case of any search request from the buyer and thus make the sellers discoverable to the buyer.

6. Network participants: Responsible for warehousing, logistics, transportation, delivery, and others. Dunzo and Loadshare are currently handling the delivery for hyperlocal stores (kiranas).

Thus, if we search for a laptop on one application (buyer-side app), it will list all the sellers who sell the specific laptop and have listed their catalogue on the seller’s application. This model addresses the major concern of hyperlocal stores about the price-predating by e-commerce giants. Further, the duopoly of these giants (i.e. Amazon and Flipkart) would reduce to dust and provide opportunities for small sellers to go online encouraging fair competition.

Whether ONDC is pragmatic

In January 2022, a strategy paper was published⁸ with the title “Open Network for Digital Commerce: Democratising Digital Commerce in India”. It laid down the roadmap for the implementation of ONDC in the long term and short term. It focused on how different components of the network would function but was silent on how the existing applications or platforms would integrate with the new model. MSME sector will play the biggest role in the model being successful but are they technologically capable of onboarding the digital network? Even if they have the technological capability, how are they going to compete with the steep discount and offers provided by the significant e-commerce players? There were no concrete solutions regarding these issues in the strategy paper.

Payment, delivery, and complaint mechanism remain the core component of any e-commerce platform. But under the ONDC model, there has been no clarification on the issue of liability in either of the case. In order to understand this issue, let us take a situation where A ordered a smartwatch from a buyer-side application when the product (smartwatch) was delivered to A, it was found that the smartwatch had some dent in it. A lodged a complaint on the buyer-side application regarding the substandard delivery of the product. Since no liability has been assigned to any party (i.e. buyer-side application, seller, and logistics partner) it would lead to an everlasting conflict between the platform, seller, and logistics partner regarding the same. These issues were also raised by the Department Related Parliamentary Standing Committee on Commerce in its 102nd Report⁹ titled “Promotion and Regulation of E-Commerce in India”.

No doubt the ONDC has the capability of transforming the entire digital commerce industry in India. However, it needs to provide a concrete strategy regarding the integration of existing e-commerce platforms, onboarding the customers, supporting the MSMEs to develop the technical capability for integration with the new model and ensuring fair competition in the e-commerce market. Further, it also needs to define the roles of different players regarding the liabilities to avoid the conflict which would arise from it.

Conclusion

The Government has pitched ONDC as the next UPI capable of altering the entire landscape of digital commerce. In theory, it seems like a dream come true for the local sellers (kiranas) but on the ground, several issues are needed to be resolved. These issues include fair competition, technological capability of MSMEs, monetisation policy, issuance of liability and onboarding of customers. Only when these are addressed, ONDC can achieve its intended purpose. In the end, it must be said that this network would be a game changer for the e-commerce market in India to democratise the industry and free it from the duopoly of the big players through the digitalisation of the small sellers.