Open Network for Digital Commerce (ONDC)

What is ONDC?

Open Network for Digital Commerce (ONDC) is a network based on open protocol and will enable local commerce across segments, such as mobility, grocery, food order and delivery, hotel booking and travel, among others, to be discovered and engaged by any network-enabled application.
The platform aims to create new opportunities, curb digital monopolies and by supporting micro, small and medium enterprises and small traders and help them get on online platforms. It is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry.

What is the main aim of Project ONDC?

ONDC aims at fostering open networks developed on open-sourced methodology, using open specifications and network protocols, and independent of any specific platform ONDC, a UPI of e-commerce, seeks to democratise digital or electronic commerce, moving it from a platform-centric model to an open-network. Through ONDC, merchants will be able to save their data to build credit history and reach consumers.

The proposed government-backed platform aims to create a level playing field for e-commerce behemoths such as Amazon, Flipkart, and offline traders who have been crying foul at the unfair trade practices of these e-tailers. The platform will also be compliant with the Information Technology Act, 2000 and designed for compliance with the emerging Personal Data Protection Bill.

In this system, ONDC plans to enable sellers and buyers to be digitally visible and transact through an open network, regardless of what platform or application they use. It will also empower merchants and consumers by breaking silos to form a single network to drive innovation and scale, transforming all businesses from retail goods, food to mobility.

The new framework aims at promoting open networks developed on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.

It is expected to digitise the entire value chain, standardise operations, promote inclusion of suppliers, derive efficiencies in logistics and enhance value for consumers.

ONDC shall take all measures to ensure confidentiality and privacy of data in the network. ONDC shall not mandate sharing of any transaction-level data by participants with ONDC. Will work with its participants to publish anonymised aggregate metrics on network performance without compromising on confidentiality and privacy.

India is keen to level the playing field for e-commerce operators and widen the digital market access for millions of small businesses and traders in the country. To this end, the government has established the Open Network for Digital Commerce (ONDC) as an alternative to platform aggregators like Amazon and Walmart-owned Flipkart, who have thus far monopolised India’s e-commerce landscape.

A pilot soft launch of the ONDC was rolled out April 29, in five cities spread across different geographical regions in India – Delhi National Capital Region, Bhopal, Bengaluru, Shillong, and Coimbatore. ONDC is not platform-centric, and its objective is to match the online consumer’s demand with the nearest available source of supply. Consumers can thus find any seller, product, or service via any compatible application or platform – offering real freedom of choice.

ONDC is expected to digitize the entire value chain, standardize operations, foster inclusion of suppliers, usher in efficiency in logistics, and augment value for consumers.

Once the ONDC gets implemented and mandated, as is expected by August 2022, all e-commerce companies in India will have to operate using the same processes, akin to android-based mobile devices, irrespective of the brand. This would provide a boost to smaller online retailers as well as new entrants by ushering in discoverability, interoperability, and inclusivity. It will empower suppliers and consumers by breaking the monopoly of giant platforms to drive innovation and transform businesses in sectors like retail, food, and mobility.

Businesses are expected to benefit from transparent rules, lightweight investment, and lower cost of business acquisition. It is also expected that the time-to-market as well as time-to-scale shall also be substantially reduced.

Large e-commerce firms have protested as they have already invested heavily in the R&D as well as deployment of their own processes and technology. Yet, the government likely considers India’s e-commerce market value – estimated to reach US$200 billion by 2027 by Statista – to be significant enough for the participation and engagement of all types of business competitors.

Amazon and Flipkart alone have poured a cumulative US$24 billion to capture 80 percent of the Indian e-commerce market through their aggressive discounts and by promoting preferred sellers. Indian retail giants like Reliance and Tata have also launched retail platforms and shopping apps and super apps.

Currently, online retail accounts for about six percent of India’s overall retail market, but traditional retailers and merchants are aware of how rapidly this could change and do not wish to be locked out or priced out. With 800 million smartphone users, India’s appeal to global retailers is also not easily dismissed. The only other comparative market landscape, by size, is China where local rivals have thrived in an indigenously created ecosystem amid Beijing’s stringent rulemaking and supervision.

Meanwhile, the Competition Commission of India raided the offices of top sellers on Amazon and Flipkart on April 28, coincidentally a day before the ONDC was launched. The move was reportedly triggered by complaints of local traders who accused the marketplace platforms of predatory pricing, deep discounting, collusion with corporate sellers, and owning the inventory they sold via a network of holding companies.

Twenty government and private organizations have confirmed investments worth INR 2.55 billion (US$33.34 million).

Several public and private sector banks, such as HDFC, Kotak Mahindra, Axis Bank, State Bank of India (SBI), and Punjab National Bank (PNB), have picked up stakes in ONDC. Axis Bank, HDFC, SBI, and Kotak Mahindra have acquired a share of 7.84 percent each, by individually investing INR 100 million (US$1.3 million) to purchase 10,00,000 equity shares of face value of INR 100 each. Earlier in November 2021, PNB had announced its plans to buy 9.5 percent share in ONDC.

Around 80 firms are working to integrate market players with the ONDC platform. These firms are making enterprise software and apps for sellers, buyers, logistics platforms, and payment gateways, as reported in The Economic Times. Meanwhile, The Business Standard has reported 24 companies, including high profile start-ups like Flipkart’s logistics arm eKart Logistics, hyperlocal delivery startup Dunzo, and payment service provider PhonePe, are in the process of integrating with ONDC.

As of May 15, 2022 – five seller platforms, one buyer platform, and one logistics partner are part of the pilot. It was announced by Paytm E-commerce Private Limited (PEPL), the parent entity of Paytm Mall, that the company will be pivoting to ONDC as its primary focus and to explore opportunities in exports businesses. PEPL also announced the exit of its early investors, China-based Alibaba and Ant Group, over this change in the business direction of the company.

Nandan Nilekani, technology entrepreneur and co-founder of Infosys, is the most prominent individual associated with the ONDC, which he envisions to be a gamechanger in the e-commerce sector. He has previously worked on developing the Aadhar biometric ID system as a uniform proof of existence (that functions similar to the US social security ID) for people living in India. Nilekani also reportedly assisted with the development of the real-time digital payment system UPI, which surpassed 5 billion transactions in March 2022.