ONDC Explained: What is ONDC, How does it work & who can join it?

The government of India in April launched its Open Network for Digital Commerce (ONDC) as an alternative to dominant global giants Amazon and Walmart in its rapidly growing e-commerce market. [हिंदी में पढ़ें]

Now, the latest news is that giants like Flipkart, Reliance Retail and Amazon are planning to join this ambitious e-commerce network called Open Network for Digital Commerce (ONDC). A report by Economic Times claims that a pilot program is already underway to include kiranas and small and medium businesses in Bengaluru and 4 other cities.

Today, in this article, we will explain everything related to Modi’s government’s ambitious ONDC platform which looks to change e-commerce landscape similar to what UPI has done with digital banking.

What is ONDC?

Open Network for Digital Commerce is a private non-profit company established by the Department for Promotion of Industry and Internal Trade of the Government of India to develop open networks for e-commerce. It was founded in April 2022. It is basically a network of a number of small and large-scale e-commerce players which aims towards breaking the dominance of firms like Amazon and Flipkart in India.

This open network will allow local commerce across important segments like grocery, food delivery, hotel booking, travel bookings, and more to be discovered and engaged by any network-enabled app. An example is, if both Amazon and Flipkart integrate their platforms with ONDC, a user searching for a coffee machine on Amazon would also see results from Flipkart on the Amazon app.

How does ONDC work?

The initiative aims to create new opportunities and curb digital monopolies by supporting micro, small and medium enterprises, and small traders to get them on online platforms. The initiative is taken by the Department for Promotion of Industry and Internal Tarde under the Ministry of Commerce and Industry.

Big players like Flipkart and Amazon have shown an inclination to support the program. This will break their monopoly and will help them tap the seller side of the ONDC to supply goods. “The bigger commerce players have indicated to ONDC that they will support it.

Besides tapping into new users, this will enable platforms with sizeable business-to-business verticals to tap into the seller side of the ONDC network to supply goods,” a source claimed.

When and Where will ONDC function?

The ONDC is already running its pilot program in 5 cities in India- Bengaluru, New Delhi, Coimbatore, Bhopal, and Shillong. It aims to reach around 100 cities by August and open it to a wider public in the current 5 cities. The program is currently in the beta-testing phase with only 5 sellers and a limited set of buyers.

Why is ONDC important?

ONDC will help in curbing the monopoly of big players and increasing the reach of small merchants. It will also help in making a larger number of buyers available to all the sellers present on the network. This way both new and existing buyers will benefit from this initiative.

The government claims that ONDC will help in ending predatory pricing in high-margin, high-value products.

What are ONDC’s Transaction Targets & how will it boost competition?

ONDC targets to raise e-commerce reach in the next 2 years to 25% of India’s consumer purchases, from 8% currently, in a country of over 1.35 billion people.

As for buyers, its target is signing 900 million buyers onboard and targeting 1.2 million sellers on the shared network within the next 5 years, while achieving a gross merchandise value of 48 billion dollars.

Currently, more than 60% of India’s e-commerce market is controlled by Amazon and Flipkart, which will change if ONDC becomes successful in achieving its target.

The GOI says existing platforms work in silos and are tightly controlled and keep out small players, but with ONDC, start-ups will increase. The focus will be on small merchants and rural consumers with apps in Indian languages. All this will boost healthy competition.

ONDC officials link the network to a mall with 1000 gates instead of just 2 thereby limiting opportunities for selected sellers to receive preferential treatment. Users will be able to rate the service of providers on ONDC which will be visible across the network.

Who all have joined ONDC so far?

Flipkart’s logistic arm Ekart and Reliance Retail backed Dunzo has integrated with ONDC for logistics services. PhonePe, owned by Flipkart and Walmart is joining the network and is in advanced stages of integration, the report said. Paytm is also a part of the network.

State bank of India, Axis Bank, PNB, ICICI, HDFC, Kotak, and IDFC First are among the lenders who are in discussions with the ONDC to set up buyer platforms. These would allow the banks to drive the use of their cards, loans, and other services.

Venture capital firms Accel and Sequoia are also interested in investing in start-ups that would join the ONDC. Telcom firms Bharti Airtel and Vodafone Idea are also in talks about how they can utilize the platform. Google is also in talks, reports claim.

What challenges does ONDC face?

A massive awareness campaign has to be organized because most small business owners lack the technical expertise to get involved in this program. Small businesses also lack the resources to match the discounts offered by Flipkart and Amazon.

How will ONDC work?

Customers will be able to access sellers on ONDC through any app that is integrated with the network. Sellers will handle deliveries through the tie-ups with logistics firms. ONDC will also have services like ledgers and payment processors for sellers.