Unpacking India’s Landmark ONDC Initiative

Image: Jonas Leupe via Unsplash
With the coming of the Open Network for Digital Commerce (ONDC), a huge tectonic shift is taking place in India that will democratize and integrate the digital commerce space says Mirum’s, Sanjay Mehta.

There are about 12 million Kirana stores in India and only about 15,000 of these are eCommerce enabled! This makes our e-retail penetration of physical stores quite trivial, especially when compared to countries like China, South Korea, and others.

India’s digital commerce landscape has changed dramatically, and the industry has seen enormous growth over the past few years. The COVID-19 pandemic has only catapulted the growth. While there was growth during the pandemic period, that phase also brought out some very vital flaws where many parts of our retail chain were digitally disconnected, and which led to a serious breakdown of the supply chain network.

But now a great revolution is taking place, a huge tectonic shift that will democratize and integrate the digital commerce space in India. This initiative by the Government of India is called ONDC (Open Network for Digital Commerce) which is set to act as a force multiplier for various segments such as businesses, consumers, application developers, government entities, and other relevant participants, through the creation of an interoperable and open playground for various sections to function together.

 
 

According to India’s Ministry of Commerce & Industry, “ONDC is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.”

“With no parallel of this kind in the world, ONDC will be the perfect hedge against monopolies dominated by large players, and which is enabled by creating an equal opportunity for all buyers, sellers and service providers.”

The motive of this initiative is to create a win-win situation for the buyers as well as the sellers/service providers. For buyers it will benefit them to shop from all possible sellers via their regular and popular digital apps and other access points, and the sellers will have a much larger buyer audience.

 
 

To understand ONDC, we need to first learn that it is neither a platform nor an application, instead, it is an enabler of commerce, via an open network. It eliminates the need for a central intermediary. It is not a medium to digitize the business, instead, it is an enabler for eCommerce expansion. Although it is a Government of India initiative, it is not a regulator, but it is a market and community-led initiative for a broad-based innovation.

Unbundling and Interoperability

The ONDC network works on 2 basic principles – Unbundling and Interoperability.

A typical e-commerce transaction involves, on the supply side, a product seller, a payment method, and a logistics provider (in case of physical goods). When you purchase from a typical e-com store today, chances are that this set of services comes bundled together. And you don’t have much of a choice across these elements.

What the ONDC offering of unbundling does is exactly what the word suggests – it unbundles all the elements, allowing the buyer to choose their own product seller, their own payment method, their own logistics provider, etc., from the options put together within ONDC.

And the way it is really enabled for a buyer, is on account of the fact that on the supply side, there has been created this whole concept of interoperability. That way, all the different product sellers, the various front-end buying apps, the various payment gateways, the different logistics service providers, etc., all of whom have their own software and systems, are allowed to connect to the ONDC network, and in a way where there is complete ease of interoperability, across all of these!

“To understand ONDC, we need to first learn that it is neither a platform nor an application, instead, it is an enabler of commerce, via an open network. It eliminates the need for a central intermediary.”

The open network will enable any buyer to transact with any seller/service provider. The buyer and the sellers will have to register with ONDC only once and both will be discoverable by the entire ONDC universe.

To give you a gist of how ONDC will work, we will discuss and short example where a person logs into a customer application and searches for options to buy groceries, The gateways will check the multi-domain registry and broadcast search to retailer seller nodes and the results will be displayed from different grocery stores along with their terms of service.


 


The person buys a few essentials from an ABC store and then searches for a delivery partner to get the order delivered to the desired address, upon selecting the delivery partner the person makes the payment via one of the payment mechanisms of his choice, to the grocery store and to the delivery partner and voila, we just experienced ONDC in action.

With no parallel of this kind in the world, ONDC will be the perfect hedge against monopolies dominated by large players, and which is enabled by creating an equal opportunity for all buyers, sellers and service providers. The ONDC network is not just limited to product-related e-commerce, but it will spread its wings over service offerings also, such as tourism and hospitality, travel, food delivery, wholesale, transport, etc.

This means that a person who wants to travel from Mumbai to Delhi will simply have to book a flight, book a cab to and from the airport, book a room for accommodation in the desired hotel and buy essentials with one single checkout, enabled by ONDC, rather than going to multiple apps to get the job done. Indeed, we are amid yet another digital revolution, of the proportion of the Aadhar system and the UPI payment network. Likewise, in the years to come, we will look at ONDC also, as being another pathbreaking initiative.

I am sure there will be teething issues, and it may take a year or two to fully stabilize, but from the point of view, of the humungous goal that it aims to meet, the investment of 1-2 years to let the systems to stabilize, is not bad at all!


Image: Jonas Leupe via Unsplash

Sanjay Mehta

Sanjay Mehta

Sanjay is Joint CEO at Mirum India and Co-Author of the book, "If I Had To Do It Again".

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