The Open Network for Digital Commerce (ONDC) is a project started by the Indian government to create an open-source technological framework that may be utilized by financial institutions, e-commerce businesses, and other participants in the digital commerce ecosystem. The platform so far is largely funded by financial institutions and banks, including BSE Investments Limited, State Bank of India, HDFC Bank Limited, and NSE Investments Limited, amongst others. The digital platform aims to increase e-commerce penetration across the nation significantly. ONDC is essentially a network of interconnected e-market places allowing buyers and sellers to interact directly, thereby eliminating the need for intermediaries or middlemen.
Based on multiple studies and reports and the response during the testing phase, the ONDC is expected to revolutionize digital e-commerce. However, in the beta testing phase, the network has expanded to more than 200 cities across eight domains, fashion & footwear, food & beverage, electronics, home & kitchen, financial services, grocery, beauty & personal care, and mobility. Moreover, ONDC officials claim that ONDC would support ending predatory pricing. Predatory pricing is a business practice, wherein the prices of a product/service are kept unrealistically low to eradicate the competition. This practice is illegal in some countries and is used with the aim of creating a monopoly.
The open network benefits both buyers and sellers in various forms. For instance, through ONDC, small hawkers could sell their products easily and be a part of the digitalization of the economy. This not only would enhance the sales figure of the hawker but would also benefit the Indian economy. The transactions by the unorganized sector largely get underestimated while computing GDP, though the unreported transactions are included in the GDP, in the end, it’s still an estimate. The Digital India Campaign would also add significant value to the expansion of ONDC’s customer base in rural areas.
ONDC Potential Effects on India's E-commerce Sector
Based on a survey by The Economic Survey, post-pandemic the e-commerce sector experienced renewed push, primarily attributable to the increased smartphone ownership, increasing number of internet users, and increase in the adoption of digital payments. As suggested by Invest India study, the number of internet users in India is expected to reach approximately 907 million by 2023. ONDC emerges as an alternative and a strong competitor to players in the e-commerce sector. The open network’s competitors include Amazon, Swiggy, and Zomato. On average, the commissions charged by Flipkart or Amazon are in the range of 15 to 25 percent, while ONDC’s commission percentage is expected to be somewhere between 6 to 15 percent. Further, there are also lower customer acquisition costs, as ONDC does not have an application of its own it's present in Paytm, PhonePe, etc. making the cost of customer acquisition very low compared to its competitors. These factors substantiate why ONDC has the potential to transform the e-commerce sector.
Challenges With the ONDC Implementation
ONDC has much potential to disrupt the Indian e-commerce sector, but various elements can restrict ONDC from being a part of the rising e-commerce domain. Moving forward, the platform will have to tackle many challenges, changing individual behavior, majority of the population using online platforms are already accustomed to the user interface of the existing companies, and ONDC will have to work hard to be in an individual’s comfort zone.
Still, at an initial stage, ONDC can potentially disrupt the Indian e-commerce sector. The actual performance of the platform can only be judged over time, post the nationwide launch of the platform.
Data security and privacy are also a problem because ONDC needs access to personal information about customers. This data can be abused or exploited, resulting in data breaches and identity theft. Concerns have also been raised over how well existing systems work with ONDC. Many current e-commerce platforms might not be able to effectively interface with ONDC, which could cause operational problems and delays in order processing.
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Co-founder and Director at RationalStat
Divyanshu is an experienced market research consultant. He helps growth-driven organizations and entrepreneurs understand market entry prospects, industry assessment, and grow their revenue strategically.