ONDC-The Good and the Bad

Open Network for Digital Commerce (ONDC) is registered as a section 8 company with initial investment from Protean eGov Technologies limited and Quality council of India. It is a govt. backed technology Infrastructure endowed with set of specifications enabling interoperability between sellers, buyers and technology platforms. The idea is to build a network centric model which will be platform agnostic.

Below is a diagrammatic representation of the platform v/s network centric model1:



Figure 1: https://internetfreedom.in/ondc-an-explainer/

The Good parts:

The conception of the network is based on open-source protocols (like https) independent of any platforms such that it is interoperable enabling many sellers and buyers transact directly with each other. This will unbundle the e-commerce sector across seller apps, buyers, order fulfilment (logistics), payments and technology. The central store of trust is no longer the platform alone (Consultation Paper)2. Buyer gets to choose the logistics partner based on price and urgency and choose the payment mode. This enables multiple logistical companies, payment companies, selling companies to come up with innovative solutions and is expected to drive the commissions down in seller apps to enable smaller/MSME sellers to list their product and manage fulfilment. Moreover, a standard seller onboarding process across the platform lowers barriers to entry and enhances access to greater customer base.  Given the network is platform agnostic, concentration of market power is foreseen to be diluted significantly. ONDC also enables technology providers to come up with simplified SaaS based solution to enable the sale function (for eg: an Image processing solution which is platform agnostic). ONDC has crossed 7.5 Million4 transactions in Feb 2024 which is 15% higher than last month which indicates a slow adoption of the platform on a prima facie basis. This is particularly significant because the share of retail transaction is 3.7 Million4 which was only 5-10% in early 2023.

Problems:

Rise of New Monopolies- In its bid to break monopolies, ONDC can create its own monopolies much like UPI has created disproportionate market share for Phonepe (47% of UPI transactions3) In ONDC, it is possible in the space of logistics which is now opened to buyer’s discretion and in the SaaS based applications space envisaged in the space of CRM/order fulfillment which can promise to keep some standards in order tracking/grievance redressal. Thus far, Platform offered one throat to choke operationally3. With logistics being decided by buyer now, they have to co-ordinate with logistics partners separately without any shipping expectations from seller apps. This would enable existing platforms like Amazon to collaborate with ONDC only at logistics and SaaS end of the value chain and replicate the monopolies. Amazon has already joined ONDC for its Logistics and SaaS based smart commerce network5.

Low barrier to entry for sellers- This can be a boon and a bane. ONDC is yet to determine a mechanism of customer satisfaction and grievance redressal. The platforms thus far took the responsibility of customer satisfaction and graded sellers/enabled refund and return of order managing the quality of service.

Sustainability- Current surge on ONDC is a result of the network trying to give deep discounts (like delivery cost incentives) by itself just to use the platform using the investment of Rs. 180 Cr5 it received in 2021-22 from private and public institutions. Moreover, ONDC’s low commission charges than in any platform6 contributes to traffic growth. These are not sustainable in the long run and ONDC might have to charge more commission and registration fee to be financially viable.

Compromises:

In pursuit of making ONDC a section 8 company, it has effectively remained outside the ambits of RTI. It will trigger opaqueness in it’s governance (much like NPCI). Moreover, sellers delisted from the ONDC will not be able to avail writ petition under Article 32 and 226 in case of violation of their rights1 (Panihar and Waghre 2023).

Similarly, ONDC states that the Data of buyers and competition shall remain siloed. However, it is counter-intuitive to the e-commerce business model wherein the buyer data is used by seller apps in platforms to give recommendations. Moreover, ONDC will find it difficult to enforce Silos for platforms with both buyer and seller apps (Panihar and Waghre 2023).

 

 

 

References:

1.       https://internetfreedom.in/ondc-an-explainer/

2.       ONDC_Building Trust_Consultation_Vf (ondc-static-website-media.s3.ap-south-1.amazonaws.com)

3.       https://timesofindia.indiatimes.com/blogs/voices/how-ondc-can-be-a-factor-in-creating-new-monopolies-in-the-e-commerce-sector/

4.       https://ondc.org/blog/ondc-records-over-7-5-million-transactions-in-february-up-15-from-previous-month/

5.       Amazon to join India’s ONDC network | Mint (livemint.com)

6.       https://bfsi.economictimes.indiatimes.com/news/industry/explained-will-ondc-be-able-to-achieve-scale-like-e-commerce-biggies/107610539#:~:text=Launched%20as%20part%20of%20the,organizations%20like%20SIDBI%20and%20NABARD.

7.       https://www.businesstoday.in/technology/news/story/prices-set-to-rise-on-ondc-as-platform-reduces-incentives-to-seller-side-apps-380758-2023-05-10

 

  

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