In today’s newsletter, we will discuss the much talked about ONDC and its general implication for Indian sellers.
ONDC (Open Network for Digital Commerce) is an initiative by the Government of India to develop an open network for e-commerce. It leads us to quite a few questions:
- What is the government trying to do?
- Why is it needed today?
- What will be the implication for the various players in the ecosystem?
Let’s get to it one at a time:
The eventual goal of ONDC is to integrate the various players in the Indian eCommerce ecosystem into a single platform. To understand better, let’s use the same example that was shared during the ONDC masterclass conducted by the Retailers Association of India on 30th Dec 2021:
Imagine Vijay logs on PayTM to buy Atta. In today’s pre-ONDC era, Vijay’s options are limited to products directly sold by PayTM or products that PayTM’s partner merchants sell. Post ONDC implementation, here’s what’s expected:
- Vijay’s request gets shared with multiple seller apps in the network
- Vijay might get two options to choose from:
- Gupta Kirana Store – Rs. 50 (No Delivery)
- NearShop (fulfilled by modern Kirana Store) – Rs. 150 (with Delivery)
- Let’s assume that Vijay chooses Gupta Kirana Store. In this case, the store will not deliver, so he will need to look for a delivery partner.
- Delivery services are also a part of the ONDC. The network will then ping the various delivery service partners with Vijay’s request.
- Let’s say Vijay gets 2 options to choose from:
- Dunzo – Delivery @ Rs. 50
- Nearbox – Delivery @ Rs.70
- Vijay chooses Dunzo and pays Rs. 100 (Rs. 50 for Atta and Rs. 50 for Delivery) for the transaction.
When we first read the above example, the first thought that came to our mind was “more choices for the end customer .” Indeed, the successful implementation of ONDC will help Vijay get the best price. However, there is a small challenge as well.
Let’s say that even after hours the order isn’t delivered – who would be accountable? Gupta Kirana Store, PayTM or Dunzo? In today’s scenario, 100% accountability rests with one player. That’s something that needs to be figured out.
However, beyond this, certain benefits are evident for sure.
For the buyers, ONDC will ensure –
- Standardization across platforms brings in much needed visibility in the system and thus preventing larger apps from misusing personal info.
- Access to more sellers and choices
- Sustainable and improved price discovery in the long run
- Enhanced service levels and faster deliveries
- Better customer experience based on the scope for innovation ( we will see companies building features for ONDC)
For the sellers, too, ONDC provides a specific set of advantages:
- A more level playing field for SMB merchants in terms of pricing power and visibility on the marketplaces.
- More reach and access to buyers
- Higher discoverability at a lower cost
- Lower cost of doing business in the long term
- Provision for value chain services in the long run (Imagine Gupta Kirana Store partners with Dunzo and shows a price of Rs. 110 at the very outset)
For the ecosystem too there will be benefits:
- Tech platforms, like PayTM can focus only on customer acquisition and let others, like Dunzo, handle the other aspects of the business.
- Smaller marketplaces and shipping companies get more level playing field
- Overall, it will be easier to acquire new customers and prevent abuse of power in the market.
All this sounds great, but is it needed? There are definite limitations in the current system, and the goal of ONDC is to take Indian Digital Commerce to the next level. To understand the restrictions, let’s look at some numbers:
- There are currently 12 Million Kirana Stores in India, but only 150,000 are E-Commerce enabled (1.25%)
- The e-retail penetration is just 4.3% in India, which is much below China (25%), South Korea (26%), and the UK (23%)
- In rural areas and remote areas, the reach is severely limited
The goals set by ONDC are ambitious. The targets for 2026 are:
- Increasing GMV of the digital transaction from Rs. 4.5 lac Crore to Rs. 7.5 lac Crore
- Increasing stores with eCommerce enablement to 40 lacs
- Amplifying the geographic reach of eCommerce from 20,000 pin codes to 100,000 pin codes
Despite all the heavy investment over the years – why do you think there is still so much scope for growth?
To understand, we need to think like the businesses that have been growing Indian eCommerce over the years. Any bit of expansion requires the setup of a distribution and supply chain. These investments and the cost of acquisition make expansion an expensive affair. Also, we are talking about the hinterlands, which may not be the most lucrative market to go after. Thus all the excitement and innovation have somewhat stayed limited to the urban and semi-urban areas.
It’s not a missed opportunity. Instead, an option that had been deliberately kept aside. We can expect ONDC to fix this somewhat. So far, the reception has been decent. As many as 20 organizations have invested $33 Million in the project, enabling a pilot run in 5 cities.
Will ONDC enjoy the same success as UPI? Let time decide! As one of the pioneers in the field of enabling ecommerce, we are cheering on this amazing initiative. Just as in digital payments, we are hoping that this will catapult India to the forefront of commerce globally.
Till Next Time.