ONDC: Build for Bharat

The ONDC: Build for Bharat Hackathon provided an immense opportunity to learn about recent developments in ONDC.

The network’s nascence did not deter 200+ builders and investors who came together to support their belief in ONDC’s potential as the UPI moment of e-commerce, to onboard the next 500M+ digital consumers into the folds of the digital economy. 

Industry veterans, builders and investors shared their roadmaps for incorporating or adapting to this new digital reality and areas where they see deep value creation in the coming years. 

Sharing below an overview of ONDC and key takeaways from the discussion.

ONDC is about Freedom. Freedom to Innovate, Freedom to Prove and Freedom to Fail, and Try Again

• Thomas Koshy, CEO, ONDC

The Open Network for Digital Commerce (ONDC) connects buyers and sellers to facilitate digital commerce.

As a brand owner in the physical world, you decide your terms of trade, your campaigns and your advertisements, exercising complete control. When it comes to the digital world, however, you do not have the same freedom. You had to play by the rules set by somebody else. ONDC gives that ownership back to me: I get to decide my terms of trade in the digital world as I did in the physical world, with an ecosystem of partners, and specialists managing their nodes, enabling these transactions.

• Owner of a Global Lifestyle Brand

That is the value of an open network of ONDC. It democratises access to e-commerce: handing back the reigns from platforms to sellers.

Overview

ONDC is an interoperable network based on the BeckN protocol. It unbundles digital commerce and makes it interoperable/platform-agnostic by bringing buyers and sellers on a single network making them globally accessible with ecosystem services ensuring a seamless transaction experience.

A simplified comparison:

A buyer can use any buyer app on the network to access products across suppliers. A purchase transaction is communicated from the buyer app, through technology rails on the network, to the seller app. The seller takes ownership of the transaction and picks a logistics provider from the network to deliver the goods, paying commissions to the seller and the buyer app for facilitating the transaction. 

Contrast this with traditional e-commerce. You can purchase goods only listed by a seller on a specific platform. The platform takes ownership of the transaction, hires logistic providers, delivers the goods to the consumer, collects money, and pays the seller after deducting its often unclear fees and commissions, withholding the buyer’s information.

Need for ONDC

With $70B+ in gross merchandise value (GMV) transacted by 50M+ households through online retail channels, we must ask ourselves: Why do we need ONDC?

ONDC solves two critical problems in digital commerce:

• Access
• Price

Access

Forget Tier-2+ India, marketplaces are still unable to serve people in larger cities. I was not able to purchase a television for my relative living in <Indian Metro City>. Despite an order value of INR 64,000, a large e-commerce platform did not service that pincode. I had a similar experience while buying air purifiers.

We were wondering who would purchase electronics online through ONDC and were surprised to learn that a local provider had listed an air-conditioner with a discount offer which was purchased through our application with installation service also being provided.

• Vijay Shekhar Sharma, Founder, PayTM

While e-commerce is growing fast, 25%+ Y-o-Y, the penetration is still 8% with a lot more to go. Major E-Commerce platforms today have solved for the 50M+ households who live in Metro/Tier-1+ regions but for the UPI moment to happen for E-Commerce, to reach 300M+ users, we need to provide greater access to Tier-2+ India.

ONDC’s value is not just in disrupting existing e-commerce markets/supply chains today, but in creating newer markets, providing local sellers in Tier-2+ regions with broader demand visibility.

These sellers will no longer struggle with managing multiple platforms’ listings with their own rules. Onboarding on one seller app will provide them access to a global demand network while expanding the option set for consumers, giving them more competitive choices.

Price

The keyword for Shampoo has become more expensive than the cost (MRP) of the Shampoo itself

• Aman Gupta, Founder, BoAt

With digital acquisition costs increasing, it has become more expensive to acquire customers, which, combined with the rising marketplace commissions, has made it uneconomical for certain categories of products to be sold online.

In ONDC, with marketplaces no longer exercising disproportionate control over the network, the value they could potentially capture decreases. Open access to the global supply and demand network increases competition, driving down commissions.

The use of horizontal service providers offsets these costs. The switch from a platform to a network provides fertile ground for creating an ancillary network of shared services across technology, logistics and dispute resolution, for instance in areas like catalogue management, RTO, vendor reputation management etc. 

Democratic access to transaction data is expected to allow horizontal network participants to operate on a lower cost base than a single entity. This is expected to reduce transaction costs in the network, providing better economics.

Solving For Trust

A critical question asked of ONDC is the development of consumer trust, ensuring goods/services get delivered per consumer specifications.

While there is no clear answer, a few technological interventions to build consumer trust and drive adoption were discussed:

• Reputation Systems – Building a reputation ledger that tracks the past performance and reviews of sellers, buyers, logistics partners etc. Positive track records can be incentivized.
• Standardized SLAs and Dispute Resolution – Common service level agreements around delivery timelines, product quality etc. with transparent dispute redressal processes help build trust.
• Digital Credentialing – Technologies like blockchain can digitally credential and verify the identity, location, and licenses/certifications of sellers to assure their legitimacy.
• Payment Guarantees – Solutions like escrow payments assure buyers that funds are only released to sellers after confirmation of delivery/acceptance.
• Community Reviews – Aggregating user reviews and ratings on different entities helps buyers evaluate trustworthiness based on crowdsourced feedback.

Much like the early days of e-commerce in India, the expectation is that over time, the market will weed out poor network participants.

Governing the Network

Governance in ONDC is expected to be community-led, playing an enabling role rather than being overly controlling. Some key principles discussed:

• Set baseline standards for reliability, transparency and consumer protection without being overly prescriptive. Allow flexibility for different contexts.

• Oversee and facilitate collaboration between participants rather than directly managing operations. Let the ecosystem self-organize with light coordination.

• Incentivize good behaviour through reputation/rewards systems.

• Continuously crowdsource feedback and make governance principles emergent based on learnings.

• Prioritize problem-solving over process compliance to quickly address issues as the network scales. Keep regulations relevant.

• Be transparent in decision-making and give participants recourse/appeal rather than operating as a “black box”.

The goal of governance should be enabling open innovation, not controlling it. If done right, light-touch governance can help ONDC maximise its potential as a self-organising digital ecosystem.

The Future

There were 4 key takeaways on the future of ONDC:

• Outstanding vs Outspending: Much like a third party in national elections, ONDC is expected to emerge as an additional e-commerce player, eventually occupying the primary spot. This will be driven by its ability to catalyse digital commerce for the 300M+ Bharat consumers who are not serviced by traditional commerce. The network strength could eventually overtake traditional e-commerce players by providing better services without heavy discounting to drive adoption, paving the way for sustainable business models.

• Expansion of Supply: The lower commissions on the ONDC network could seed the online uptake of products/services that were previously unfit for digital commerce, due to lower margins. For instance, delivery in a 0.5km radius from your local Kirana may be possible even for smaller AOVs, driving higher sales of low-value items hitherto picked up only at the store/during checkout. A similar example but on the other end of the spectrum is the delivery of high-value furniture over shorter distances. 

• Market Structure: There are expected to be fewer buyer apps with a much higher proliferation of supplier apps since consumer trust is more difficult to capture, and manage than businesses that prioritize business value creation. Existing businesses with a large, active consumer base like PayTM/Ola/MagicPin have built the guardrails and/or set up dedicated teams to enable commerce via ONDC.

• Cross-Border Commerce: ONDC could be the fabric enabling cross-border digital commerce for Indian brands. Like UPI’s expansion to other countries, ONDC’s export-ready supplier network could eventually be picked up by buyer apps in other countries, expanding the demand for homegrown consumer brands in international markets akin to what Shein has done for fashion. 

Closing Remarks

With rising per capita income, consumers of Bharat will demand higher-quality products and services, and the convenience of digital commerce.

Despite open problem statements around cultivating trust, driving adoption and governing ecosystem behaviour, with 1 lakh+ daily orders, early green shoots are visible. 

We are excited to see founders build on this new fabric of commerce. If you are building on ONDC, please reach out to me here.