Just when we are indulged in the excellence of UPI, the ease it provided us in our transactions, the government has come up with ONDC, another network, formally known as Open Network for Digital Commerce.
ONDC is a private, section 8 company, established by the Department for Promotion of Industry and Internal Trade (DPIIT). According to the companies act 2013, a Section 8 company can be established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objectives of the company and no dividend is paid to its members. In simple words, it is a non-profit company.
As the name suggests, it is an open network, where you and I can participate under the following 4 roles
- Buyer Network Participant
- Seller Network Participant
- Gateway
- Technology Service Provider
Before digging deep into this network, let us try to derive the answers to the basic questions that revolve around ONDC.
- Why the sudden need for an open network?
- Do we really benefit from this network
- How to access this network/How to join this network?
- In the long run, what impact will this create on us?
Problems around current e-com systems
The problems surrounding the current e-commerce can be well understood by considering 2 pairs of companies that have created a duopolistic market in their respective domains, Amazon-Flipkart and Swiggy-Zomato.
The basic model under which an e-commerce platform operates is either one of the following 2 types
- Inventory model
- Marketplace model
Inventory Model
According to FDI policy (Foreign Direct Investment), the Inventory model simply indicates the e-commerce activity, where an inventory of goods and services is owned by the e-commerce entity and sells it directly to the customers.
Here, the e-commerce company manages the inventory, communicates with the customer, runs logistics and is involved in every aspect of the process.
Marketplace Model
According to the same FDI policy, in a marketplace model, the e-commerce company acts as a facilitator between buyers and sellers. This model enables a large, fragmented base of buyers and sellers to discover prices and transact with one another in an environment that is efficient, transparent and trusted.
Under the marketplace model, the seller lists the product on the e-commerce site and the buyer finds it and pays a price which includes the logistics and packing charges levied by the e-commerce site. Therefore, the only way through which the company sees profit from this process is under the logistics and packing charges (not considering the platform fees).
Instead, the company, with huge data available, can discover which product sells the most in which region of the nation, and either buy those high-demand products from the seller directly at huge quantities and cheap prices and list them on their website at a higher price or set up a manufacturing unit in the vicinity to self-produce and sell them on their site.
Both the above-discussed methods give great profit margins for the e-com company compared to the marketplace model. Hence, the e-commerce giants indulged in the inventory structure indirectly. For example, Amazon had 2 best sellers – Appario Retail and Cloudtail.
Cloudtail was formed under Prione Business Services, which is a joint venture between Catamaran Ventures (Narayana Murthy) and Amazon, where Amazon had the majority of shares. Similarly, Appario Retail is operated under Frontizo Business Services- a joint venture between Amazon and the Patni Group.
Through these 2 companies, Amazon sold products at the price they decide, which shook local traders, and other sellers. Hence, local trader bodies raised complaints against the e-commerce mammoth, which resulted in the CCI (Competition Commission of India) raid on the premises of those 2 sellers and eventually, Cloudtail shut its selling services on May 2022, while Appario is in the process of delisting.
Though the problem might seem to be solved, the e-com sites can also sight money through preferential seller treatment. The products from chosen sellers may be promoted well, while others remain at the terminal.
The hyperlinked report from Reuters well explains this issue.
The problem with food delivery apps is more or less the same, where it is evident that the in-app menu prices are more than the prices available at the shop, plus the delivery charge, platform fees, and packing charges all just increase the pain. Also, most food delivery apps haven’t seen profit in years, hence the government tax revenue from these companies also takes a hit.
Enter ONDC
DPIIT was concerned with the issue of domination, and first proposed the idea of an ONDC in 2020. The process picked its pace in July of 2021. Initially, a 9-member advisory committee was started by DPIIT which currently includes Adil Zainulbhai, Anjali Bansal, Arvind Gupta, Dilip Asbe, Jaxay Shah, Kumar Rajgopalan, Nandan Nilekani, Praveen Khandelwal, R S Sharma, Sanjiv Singh and Suresh Sethi.
The Quality Council of India helped in creating an ONDC based on open-source methodologies using open specifications and network protocols. It incorporates inventory, logistics, dispute resolution, etc. The DPIIT allocated 10 crores as initial investment, and further capital was gained through seed funding by various private, and public sector banks like
- Punjab National Bank – 9.5% for 25 crores
- State Bank of India, Axis Bank, Kotak Mahindra Bank – 7.84% for 10 crores, each
From that point, there was nothing to stop the development of ONDC and in April 2022, the pilot phase was launched in 5 cities – New Delhi, Bengaluru, Bhopal, Shillong and Coimbatore. This further expanded to cities like Chennai, Kanchipuram, Pollachi, Ramanathapuram, Mannar, Faridabad, Bijnor, Bhopal, Chhindwara, Kolkata, Pune, Kannur, Thrissur, Udupi and so on, and currently, the ONDC is active in 273 cities with public access. You can check whether your city has any sellers on the network through this map.
The ONDC uses “free software methodology, open specifications and open network protocol”. On the ONDC, the consumers and merchants can transact goods and services independent of the platform or application. Beckn will provide the technology and specification layer on which ONDC will design the network policies, network trust, network grievance handling and network reputation system.
ONDC plans on implementing a dynamic pricing model, digitised inventory management and optimising the delivery cost to help reduce the cost of doing business for everyone on the platform. ONDC will work on a hyper-local search engine model based on GPS proximity data as the default setting. The buyer can independently select the seller and logistics partner to complete the order.
Beckn Protocol
The backend of the ONDC is built on Beckn Protocol, an open and interoperable protocol for decentralised digital commerce. Beckn Gateways provides anonymised aggregated data generated from the network. The interoperability is achieved by unbundling the packet transmission layer from the experience layer so that the core of commercial transactions such as discovery, order booking, payment, delivery and fulfilment can happen in a standardised manner.
It can be customised based on the requirement of the customer and provider by taking a modular approach. Beckn is not e-commerce specific and can be used in other areas of digital public infrastructure like healthcare, mobility etc.
Nandan Nilekani, Pramod Varma and Sujith Nair developed Beckn Protocol in partnership with ISPIRT. The project is supported by Beckn Foundation. Beckn brand is owned by Open Shared Mobility Foundation in which Nandan Nilekani is the sole investor. It facilitates the third layer of public digital infrastructure which is the digital transaction layer in an open digital ecosystem. This helps promote market competition and regulate anti-competitive behaviour.
The development came after the failure of US standard bodies to set new standards and left it to Big Tech companies to solve the issue. Beckn Protocol is a substitute for and compatible with the similar protocols developed by the US that are in use globally for transactions and sending information between computers. The success of UPI gave further impetus to develop more open-source ecosystems in other areas at a national scale.
Dive into ONDC
As discussed before, you can join the ONDC under 4 different roles.
As a Buyer Network Participant (Buyer Node), you can connect buyers to the ONDC network via a buyer application and shoulder buyer-facing responsibilities such as customer support, ensuring a seamless shopping experience, and providing a single checkout experience across categories. For this
- Any business with a strong customer base can join ONDC as a buyer network participant.
- This can be through your existing application, a white-labelled app, voice assistant, chatbot, or any interface which can integrate with the network, and fulfil the feature requirements mentioned below.
- Buyer network participants can also choose to partner with a technology provider to create a buyer-facing interface integrated with ONDC.
As a Seller Network Participant (Seller Node), you are responsible for connecting sellers to the ONDC network through a seller application. They are also responsible for digitizing the seller’s catalogue and dispersing payments. Additionally, they must train sellers on best practices in e-commerce to ensure quality fulfilment and provide a positive buying experience for customers. There are 2 sub-roles under this, which is similar to the market models discussed above
- A Marketplace Seller Node (MSN) does not produce or manufacture any inventory of its own. It acts as a marketplace to offer goods and services that are provided by sellers.
- An inventory Seller Node (ISN) is any application operated by a seller who produces or manufactures and sells its own inventory. It doesn’t include products/services by other sellers.
As a Gateway to the network, you can serve as technology providers to ensure that all sellers in the ONDC Network can be discovered. You facilitate multicasting by forwarding search requests from buyer applications to all seller applications and vice versa, as specified in the ONDC Network Policies. The Gateway service enables manual searches by end consumers by providing relevant product/service information from ONDC’s seller universe.
The last, Technology Service Providers (TSPs) are crucial in offering a range of software applications either as standalone solutions or via cloud-based services. As an outsourced software provider, TSPs enable seamless business operations on the network, empowering players to participate in e-commerce without requiring in-house technology capabilities. TSPs also serve as drivers for achieving ONDC goals and attracting businesses of various sizes to join the network.
Once you have selected your role, all you have to do is fill out this Gform declaring the necessary details. But, before that, we strongly recommend you to get familiarized with the network, for which, the department has provided with few links at the ONDC site.
Buy from ONDC
Aside from these roles, to buy products from the ONDC, there are currently 6 platforms available.
Benefits of ONDC
Benefits for Consumers
- More choice: ONDC will give consumers more choices by allowing them to shop from a wider range of sellers. This is because ONDC will be an open platform, meaning that any business can participate. This will be especially beneficial for consumers in rural areas, who often have limited access to e-commerce platforms. For example, a consumer in a rural area might be able to buy products from a local seller on ONDC that they would not be able to buy on a traditional e-commerce platform.
- Lower prices: ONDC could lead to lower prices for consumers by increasing competition between sellers. This is because sellers will be more likely to offer lower prices in order to attract customers. For example, if a consumer is looking to buy a product, they might be able to find a lower price on ONDC than they would on a traditional e-commerce platform.
- Better products: ONDC could lead to better products for consumers by giving them more information about the products they are buying. This is because sellers will be required to provide more information about their products, such as product descriptions, ratings, and reviews. For example, a consumer might be able to read reviews of a product before they buy it on ONDC, which would help them to make a more informed decision.
- More convenience: ONDC could make it more convenient for consumers to shop online by providing a single platform for them to search for and purchase products. This will save consumers time and effort by eliminating the need to search for products on multiple platforms. For example, a consumer might be able to find all of the products they need for a specific project on ONDC, which would save them time and effort.
Benefits for Business
- Access to a larger market: ONDC will give businesses access to a larger market by allowing them to sell their products to consumers across India. This is especially beneficial for small businesses, which often have limited resources to reach a national audience. For example, a small business in a rural area might be able to sell its products to consumers across India on ONDC, which would help them to grow their business.
- Lower costs: ONDC could lead to lower costs for businesses by reducing the need for them to invest in their own e-commerce platforms. This is because ONDC will provide a common platform that businesses can use to sell their products. For example, a business might be able to save money by using ONDC instead of building its own e-commerce platform.
- Increased competition: ONDC could lead to increased competition for businesses by making it easier for new businesses to enter the market. This is because ONDC will have an open architecture, which means that any business can participate in the platform. For example, a new business might be able to enter the e-commerce market by using ONDC, which would help them to compete with larger businesses.
- Improved transparency: ONDC will improve transparency for businesses by providing them with more information about the market. This is because ONDC will have a central repository of information about product catalogues, pricing, and logistics. For example, a business might be able to use ONDC to get information about the prices of products in different markets, which would help them to set competitive prices.
Challenges in ONDC
Onboarding sellers: One of the biggest challenges facing the network is onboarding sellers. The platform needs to attract a large number of sellers in order to be successful. This will be a challenge, as many sellers are already using existing e-commerce platforms.
There are a few reasons why sellers might be reluctant to switch to the network. First, they may be concerned about the potential for competition. If ONDC is successful, it could attract a large number of buyers, which could lead to lower prices for sellers. Second, sellers may be concerned about the technical challenges of switching to ONDC. The platform is complex and there may be some technical hurdles that sellers need to overcome.
Therefore, it will need to address these concerns in order to attract sellers. The platform needs to provide sellers with a compelling reason to switch, such as lower fees or access to a larger market and must provide technical support and training.
Building trust: This will be a challenge, as consumers are not familiar with the platform and businesses are concerned about the potential for competition.
There are a few reasons why consumers and businesses might be reluctant to trust ONDC. First, the platform is new and there is no track record of success. Second, consumers may be concerned about the privacy of their data. Third, businesses may be concerned about the quality of the products and services offered on the platform.
Therefore, the network will need to address these concerns in order to build trust. The platform needs to be transparent about its privacy practices and it needs to ensure that the products and services offered on the platform are of high quality. ONDC also needs to provide consumers and businesses with a way to resolve disputes.
Competition from existing players: ONDC faces competition from existing e-commerce platforms, such as Amazon and Flipkart. These platforms have a large user base and a strong brand reputation. ONDC will need to differentiate itself from these platforms in order to be successful.
There are a few ways that ONDC can differentiate itself from existing e-commerce platforms. First, ONDC can focus on providing a more transparent and user-friendly experience. Second, ONDC can focus on providing a wider range of products and services. Third, ONDC can focus on providing better customer support.
Regulatory challenges: ONDC also faces regulatory challenges. The platform needs to comply with a variety of regulations, such as those related to data protection and consumer protection. This could be a challenge, as the regulatory landscape in India is constantly changing.
ONDC will need to stay up-to-date on the latest regulations and it needs to ensure that the platform complies with these regulations. ONDC also needs to be prepared to respond to any regulatory challenges that may arise.
Lack of awareness: Many consumers and businesses are not aware of ONDC. This will be a challenge, as ONDC needs to raise awareness of the platform in order to attract users.
ONDC can raise awareness of the platform through a variety of channels, such as advertising, social media, and public relations. ONDC can also partner with businesses and organizations to promote the platform.
Technical challenges: ONDC is a complex platform and there are some technical challenges that need to be addressed. For example, ONDC needs to be able to handle a large volume of transactions. So, it must invest in technology in order to address these challenges. ONDC will also need to partner with technology companies to ensure that the platform is reliable and efficient.
Scaling the platform: ONDC needs to be able to scale the platform in order to meet the needs of a large number of users. This will be a challenge, as ONDC needs to ensure that the platform is reliable and efficient.
ONDC will need to invest in infrastructure in order to scale the platform. ONDC will also need to partner with logistics companies to ensure that the platform can deliver products to users in a timely manner.
Conclusion
All these data may give a positive look at the network. But, in the end, it all comes down to the players on the field. More and more customer networks may increase the volume of purchases in the network and will force more sellers to join the competition, thus increasing the range of products.
Also, with the network being a non-profit company, there are fewer chances of foul play by big players in the network and this will pave way for an equalistic e-commerce environment. Once the challenges being faced are expelled, ONDC would have achieved its objectives and will become a sensation, just like what UPI has done.