You are on a call with your mum, evangelizing about how good oranges are when it comes to boosting immunity. She says okay, but you know she would procrastinate and not buy them. You insist, but she disconnects stating that the ones sold online are not up to the mark and only Hamara Kirana sells good quality fruits. A determined you then go to the ABC BUYER app, search for oranges within 3 km of the input address, find an option of INR 100 from Jiomart (with delivery) and one for INR 60 from Hamara Kirana (without delivery). You select the ones from Hamara, then pick Dunzo as the logistics provider, pay for both from PhonePe, the delivery rep then gets the job done.
I hope you get the context. For nuances, read on.
Index
Primer on ONDC
Why ONDC?
How does ONDC work?
What does the network provide?
Flows/ Target Segments Captured by ONDC
Potential Sectors
Challenges
Open Network for Digital Commerce (ONDC)
ONDC is an enabler to digital commerce. An open, interoperable, and democratic ecosystem for buyers and sellers to interact and transact, ensuring a flow of value rather than a store of value.
Wow, jargon. Let me break it down.
Open: Anyone willing to sell and buy can participate. Anyone willing to contribute can participate. One need not be an employee of a big e-comm giant to build seller-friendly Apps. The platform is open source, if you one day feel that there needs to be an efficient product cataloging App for the small Kirana stores, you can build that, unlock value and integrate the same with ONDC.
Interoperable: You need not be a buyer and seller registered on an app to buy or sell. A seller is available across the platforms after a one-time registration, and buyers can discover it from any buyer-side Apps. Just like the UPI.
Store-of-Value versus Flow-of-Value: In a platform-based model, the rules of engagement, terms of onboarding, handling of data, and the search algorithm are some of the many things controlled by the platform. The platform indirectly owns the entire value chain. Comparer avec, a network-based model, only specifies the protocols for communication between different players in the value chain. It unbundles the value chain and allows it to flow in a manner decided as efficient by the market.
Okay. But why ONDC?
Consider this. Only 15,000 of the 12 million small Kirana shops in India are online. That’s only 0.13%. The analog shops have to depend upon ones who know the shop and are willing to walk to them. The digital commerce penetration in India is only 4.3%, against, say, 25% for China. Measure this against the growth in the Indian e-commerce space, expected to rise to $111 bn by 2025 from $46 bn in 2020.
In terms of the ecosystem issues, buyers and sellers have to deal with closed environments today. The whole onboarding experience, terms and conditions, product discoverability, and last-mile logistics of the sellers are determined by the platform. These marketplaces also control the UX of buyers.
ONDC aims to remove all these inefficiencies and create a uniform communication code amongst market players. To put this simply, if you were in an iOS ecosystem before, ONDC is proposing an android for the masses. I mean, sort of.
How does ONDC work?
ONDC connects buyers and sellers via a defined set of communication schema. These are BeckN open protocols for ONDC, but more on them later. Imagine the below user journey.
Market Entities: Buyer (you), Buyer-side Apps (say Amazon, PhonePe if they wish to participate), Aggregators, Gateway (similar to NPCI for UPI), Seller-side Apps (Supermarkets, Kirana stores, Retailer, Logistics providers, Other service providers) and Sellers.
The Buyer, 'X', logs in to a Buyer side App
X searches for Oranges, the buyer-side app converts the search item into a uniform product code, communicates with ONDC registry, searches for the items in the seller side App, and returns the result
Buyer side App provides the ability to sort items via distance, self pick-up, lowest price, delivery in next 1 hour, to name a few
X selects the store/ aggregator for the item. If they wish, they can segregate the delivery from the purchase bit and select a delivery partner
Buyer pays for the items and to the delivery partner
The buyer and seller side Apps control the UX - similar to how a PhonePe and Google Pay control your journey within their Apps
All communications happen via open APIs
Data is stored anonymously in an aggregate and abstract manner within the DEPA framework for statutory reasons, registry, and operational controls
Other open networks can freely connect with ONDC as long as they follow the BeckN protocols. OCEN (Open Credit Enablement Network) can be a significant credit enabler by providing short-term low ticket loans to Kirana stores for their working capital requirements
ONDC will maintain a single, multi-domain registry
National protocol, anyone can order from anywhere
One-stop-shop. Enrollment is a one-time activity
How are these Buyer and Seller side Apps helpful?
Buyer side App controls the buyer-side UX, and the seller-side Apps are free to innovate for sellers. However, BeckN governs the interaction in the ecosystem. Consider the UX and cross-selling tactics of a PhonePe, Google Pay or PayTm.
What will ONDC provide?
Registry: Of all market participants - retail, aggregators, travel, hospitality, mobility
Network Policies - To keep the ecosystem open and democratic, prevent monopolies; for instance: NPCI mandates PSPs to not have more than 30% market share in terms of UPI volumes
Reputation Ledger - For ratings, complaints, and queries
OpenData Ledger - Based on digital contracts, immutable logs
Inter-network interoperability - no monopoly in terms of who will control the UX
Payment processor - not prioritized for FY '22 release
Which flows can ONDC propel?
Wholesale, Food Delivery, Mobility - Metro tickets to Cabs, Tourism and Hospitality, Travel - Flights, Trains, B2B: Merchants and retail shops.
Fintech: Buyer Apps connected with seller Apps via AA to provide loans, sell other banking products: insurance, BNPL, Fastags.
Amazing. What benefits can end-to-end integration bring?
Reduced time-to-market and time-to-scale via plug and play Apps
Platforms like Shopify, Wix, BigCommerce for Kirana stores to go online at minimum cost can integrate with the network
PGs like Razorpay, PayU can provide immediate payment integration solutions for upcoming sellers to cater to a pan-India audience
Scanners and Cataloguing Apps services to bring in uniformity in product discoverability
Logistics support from Zepto/ Dunzo/ Genie to control the last-mile UX
Experience Apps like Ferns and Petals can integrate with ONDC to leverage other market participants and deliver an enhanced UX
Small value credits are a big issue for sellers. The Account Aggregator (AA) framework can go a long way in delivering it. The same goes with the demand for BNPL on the buyer-side
Inter-state logistics based on demand and supply-side data can be made more efficient by players like Blackbuck, Rivigo, Delhivery
Blockchain can be leveraged for digital contracts
Challenges to ONDC
Handling of refunds, especially in cases where selection of goods and logistics partner is not from one provider
Returns: Clarity in terms of who will bear the cost for returns
User Experience: A fragmented ecosystem has to be dependent upon multiple players to provide a seamless UX. A Kirana store still has to depend upon a, say, Dunzo to make their customers happy
Reach: Last-mile penetration is heavily dependent upon the availability of smart phones. ONDC’s reach is limited to this extent
Grievance Redressal and Customer Service: A fragmented ecosystem reduces accountability which in turn impacts credibility
Tell me more!
There is, indeed, more. On how fintech can help, what are the possibilities on the payment front. What are BeckN protocols and how do they operate?
But, we should take your leave now. More on this, next Sunday.