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ONDC: Can it Revolutionize India's e-commerce?

BFSI | May, 2023

In recent years, the eCommerce market in India has registered an exponential growth, driven by rapid digitalization, changing consumer purchasing behaviour, and increasing penetration of smartphone and Internet throughout the country. The eCommerce sector in India opened various segments of commerce ranging from B2B, C2C, and C2B, which contributed significantly to the booming economy. The India eCommerce industry is predicted to reach USD350 billion by 2030, owing to the introduction of favourable policies by the government and rising digital literacy in the country. For a country boasting 600 million smartphone users, 840 million internet connections and more than 1.17 billion telecom subscribers, it seems idealistic that the Indian government wants to disrupt the eCommerce space introducing its own platform, ONDC.  Although the private companies are doing very well in India, the eCommerce sector has been largely dominated by two big players, Amazon (US-based e-tailer) and Flipkart (Walmart-backed), both owned by global entities. This has restricted small eCommerce players to realize their full potential. Currently, just 4–5% of the retail sector uses internet commerce, which leaves space for more market competitors and disruption.

ONDC: A Step in the Right Direction to Prevent Monoliths

The Open Network for Digital Commerce or ONDC, a non-profit initiative by the Ministry of Commerce & Industry is a giant step towards the democratization of eCommerce space in India. The main objective of introducing ONDC in the Indian market is to enable small retailers to compete with big and established players in the eCommerce sector and thus make the digital opportunity available to all in an equitable manner. Besides, the government of India endeavours to increase the online penetration in consumer purchases from 5% to 25% in the span of two years, supporting an open network for the eCommerce industry. Creating an equal opportunity for big and small players, the central government aims to accelerate digitalization. The democratisation of digital commerce will be aided by the shift away from platform-centric teaching to an open-source framework. The ONDC will aid in the digitization of the entire value chain, promote supplier involvement, systematise operations, create logistical efficiencies, and increase value for consumers. At its foundation, ONDC would be a system that allows a network to onboard millions of retailers, sellers, and potential customers through buyer-seller-facing applications, resulting in a uniform market.

In order to prevent monopolies in the e-commerce ecosystem, ONDC makes use of open-source protocols. Currently, in a platform-centric e-commerce model, the majority of Kirana stores are at a disadvantage due to their lack of technological know-how. By giving them access to procedures and tools generally used by significant e-commerce platforms, ONDC will foster fair competition. As more of these businesses go online, the e-commerce network will see an increase in their digital visibility and reach. Besides, small retailers can access the platform at 8-10% of the selling price of products compared to 18-40% that they have to currently pay to big e-tailers like Amazon and Flipkart. However, there is no fixed cap on commission charged by the platform as the market would dictate the fee/commission charged on the platform and not the government. By minimising the costs of conducting online business, ONDC may further assist small business owners by standardising inventory management, order management and fulfilment, and other activities. Deep discounting, predatory pricing, collusion, and inventory-owning practises in e-commerce can be restrained by ONDC using open-source protocols for product cataloguing, vendor matching, and price discovery.

How will ONDC Act as a Catalyst for eCommerce Growth in India?

According to the 'Publicis Decoding ONDC' report, the number of Indians shopping online has surged by 175% in the last five years. Startups in the finance, edtech, and online retail sectors have pioneered and challenged established conventions in recent years as a result of this surge in the usage of digital channels. The coronavirus significantly increased demand and opened a whole new range of potential for the online retail industry. Cities in Tiers 2 and 3 have experienced tremendous growth as a result. The government's "Digital India" plan, which aimed to approve Internet infrastructure and increase internet accessible in the nation, caused a significant increase in demand for online transactions, e-commerce, banking, and edtech.

Providing e-commerce infrastructure to more than 2 million retailers, ONDC will make the products and services available to an estimated 250 million buyers. Over 75% of Indian pin codes would also be covered, according to ONDC. By acting as a catalyst and enabling value to flow down the chain, the ONDC network will prevent value from being concentrated among a small number of actors and instead benefit all parties involved in the process. There would not be any entry hurdles that discourage gamers from taking part and stifle creativity.

Facilitating an environment devoid of any form of control, ONDC grants everyone who participates inclusion, choice, and agency. Additionally, price comparison will be a breeze because all players will be accessible with a single search on ONDC. The users will be able to compare prices for the same goods across many websites. On the whole, players of all sizes can make profit from ONDC.

Will ONDC Lead to More Stable Supply Chain?

Since ONDC will not be a platform-centric model, it will undoubtedly democratise the nation's online market for all customers, vendors, and logistics service providers regardless of their size. Digitalizing the entire value chain would make operations more efficient and standardised. Utilising applications that are ONDC compliant, customers can locate vendors and goods. Additionally, it will provide customers the opportunity to select the neighbourhood businesses of their choice and shop from the closest source. The open network for MSMEs and clients from all over India is so densely populated that ONDC will improve delivery as a result. There will be a sharp increase in orders from all around the nation, which will result in more deliveries, including last-mile deliveries to end-customers from sellers, dark stores, or 3PLhubs. Customers will have a more positive shopping experience and be encouraged to patronise small, neighbourhood shops if shipping is swift, accurate, and smooth.

Here is how local retailers and small-to-medium businesses can unlock the benefit of ONDC for on-network logistics demands.

  • Leave the Hassle to an Experienced Logistics Partner

On the ONDC network, most MSMEs/SMEs do not exclusively focus on logistics. However, a company's entire supply chain system can be destroyed by a simple change in delivery routes, client demand, or an increase in return orders. The availability of approved ONDC logistics partners can provide access to quicker, less expensive, and more effective shipping choices. All businesses, especially startups, can outsource their delivery requirements to on-network logistics providers who have already been linked into the ONDC network, which would help them avert in making logistical errors that could prove to be negative to their brand image.

  • Utilise Cutting-Edge Technology to Increase Client Satisfaction

Enhancing the customer experience is the top focus of all D2C firms in the current retail market, and with ONDC logistics, they can provide the fulfilment service their customers’ demands. For data-driven decision-making, partnering with a fulfilment supplier with sophisticated automation and potent technology is crucial. As a result, brands can improve their fulfilling strategy and shorten lead times, increasing their chances of success.

  • Optimise Your Logistics to Grow Your Online Store

SMEs could be able to handle a few hundred packages' delivery on their own. However, working with a licenced logistics player is a much more sensible choice if they are focused on long-term success. The fulfilling partner sees an increase in their order volume.

  • Increase Profits While Cutting Costs

Self-fulfilment is a popular choice among D2C firms and startups because it is a cost-effective and effective marketing tactic. However, they neglect to factor in the numerous hidden for expenditures related to labour, technology, energy, and other expenses, which eventually cost far more than if they had just chosen an on-network logistics solution. Brands may bargain for the most affordable warehousing and distribution costs by teaming up with dependable logistics service providers on ONDC. Additionally, by leaving the responsibility for order fulfilment in the experienced hands of a logistics partner, businesses may focus their time and money on other revenue-generating activities (marketing, product launches, etc.).

  • Increasing Market Awareness in Tier 3–4 cities

Although ONDC differs from other marketplaces in a number of ways, its ability to help all businesses find new clients in Tier-3 and Tier-4 areas may be its greatest advantage. However, it can be difficult to guarantee client pleasure with excellent delivery in these far-off places, especially for small, or recently established D2C firms.

ONDC and its Impact on Digital Economy

India is surpassing the rest of the globe when it comes to digital payments due to UPI's simplicity and convenience as well as the growing number of consumers shifting to contactless payment methods. Given the 11.8% growth in digital payments recorded by India's e-commerce sector, a network like ONDC offers significant potential for businesses in the financial services industry. Industry sources predict that the ONDC network will expand to 12 lakh merchants, 90 crore customers, and 730 crores in additional annual sales in the coming five years. Besides, ONDC can provide an additional gross merchandise value of Rs. 3.75 lakh crore (USD 45.42 billion) for the ecommerce business. With the ONDC network, UPI transactions are anticipated to increase to a new level. The need for FinTechs is expected to increase as the volume of transactions will go up for providing reconciliation frameworks.

A sizable number of merchants have been gathered by SME neobanks and FinTech businesses that operate in the accounting and invoicing market. They want to take advantage of the opportunity to add these merchants to the ONDC network. FinTechs are also well-positioned to provide sellers on ONDC with a variety of services, including accounting and inventory management.

The Reserve Bank of India (RBI) has consistently argued for increasing the usefulness of digital payments and has been at the forefront of encouraging innovation in payments. Similar to this, the RBI could think about establishing a regulatory sandbox to investigate potential solutions for integrating current payment processes on the ONDC, especially given that the ONDC is also seen as a stand-in for innovation. This strategy is comparable to the "ONDC - NABARD hackathon," which aims to test out new agri-tech or rural-tech ideas. Similarly, linking digital payments in offline mode for supply-chain related activities (especially for the agricultural sector) should be investigated to achieve one of the ONDC's goals of tackling supply chain difficulties. The RBI should consider the ONDC to offer tokenization services, which would give retail customers a higher level of security.

Moreover, lending institutions and various "buy now pay later" platforms would have the chance to streamline their product offerings for consumer loans or financing trade receivables on the ONDC. By utilising the technology solutions that the ONDC offers, the creation of a single digital network also paves the door for fintech players and "neo banks" to develop further and increase digital lending to small and medium-sized businesses and consumers.

Way Ahead

The ONDC initiative has the potential to completely transform India's e-commerce sector by establishing a common digital infrastructure and enabling seamless integration, which can lower costs and make it simpler for small businesses to enter the market. The ONDC can also improve customer experience by offering individualised shopping experiences and ensuring transparency and security in e-commerce transactions.

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