Buoyed by the success of several digital initiatives in the country ranging from Aadhaar to Co-Win and UPI transactions, the Union government has embarked on an ambitious Open Network for Digital Commerce (ONDC) project.
ONDC is an open, non-profit e-commerce platform that aims to provide a level playing field for all types of sellers, from kirana stores to retail chains and even the biggest e-commerce players.
The pilot phase of ONDC was recently launched in five cities (Bengaluru, Bhopal, Coimbatore, Delhi-NCR, Shillong) with 150 vendors, and over the next 6 months the footprint is expected to grow to 100 cities across the countries with more than 3 crore sellers. Reports suggest that there are 1.2 crore kirana stores in the country and only 15,000 of them are e-commerce enabled.
The gross merchandise value (GMV) of online retail has tripled in the past 5 years and yet it only accounts for 4.3% of total retail segment sales. By comparison, online retail as a percentage of overall retail sales in South Korea, China and the UK is 26%, 25% and 23%, respectively.
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A recent report indicates that the e-commerce market is expected to grow from around $75 billion by 2022 to $350 billion by 2030. It should also be noted that Amazon and Flipkart account for around 60% of the e-commerce market. e-commerce in India. . Can ONDC seize the moment in the retail space?
Currently, big players like Amazon, Paytm, etc. have created apps/portals where buyers, sellers, logistics and payment are integrated into their platform. So, a customer who is logged into an app or portal (say Paytm) can purchase goods from that portal only. If the buyer wants to buy from another application (eg Amazon), he must log in to the application and purchase goods. Currently, all e-commerce players have a centralized approach. ONDC, on the other hand, has a decentralized network approach. Here, the same Paytm platform can be used by the buyer to search for a product. Instead of only seeing what is offered by Paytm sellers, the buyer can choose from a variety of sellers: this can be a nearby kirana store or other established e-commerce players. It also gives freedom of choice to buyers and sellers. More importantly, the buyer can purchase goods or services without logging into different e-commerce portals or applications.
Buyers and sellers can transact regardless of the platform or app they use to be seen digitally. Such public digital infrastructure enabled by ONDC has the potential to disrupt the hospitality, travel, food delivery and mobility segments in addition to the retail segment.
ONDC is based on an open protocol called Beckn, which allows interoperability of a wide variety of buyers and sellers. This effort to standardize all aspects of the entire chain involving various entities for the exchange of goods and services is essential as it would enable a seamless experience for all participants within the ONDC network. The platform should act as a catalyst for the expansion of e-commerce and be a market and community driven initiative instead of being a regulator. More importantly, such an open and decentralized network would certainly drive innovation.
It aims to work on three key aspects: dynamic pricing, inventory management and optimization of delivery costs, and thus lower the cost of doing business for all players, including retailers.
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Several tech startups have already started working on ONDC. To provide long-term vision and support to the initiative, private sector banks (HDFC, Kotak, ICICI), public sector banks (SBI) and financial institutions such as BSE and NSDL, among others, hold jointly with the ONDC. Several reports indicate that many private banks, technology giant Google and FMCG companies like Dabur, ITC and Unilever are likely to join the ONDC network.
One of the biggest challenges ONDC will face is replicating or improving the existing user experience and quality of service provided by the country’s leading e-tailers. Since e-merchants own the end-to-end system, they are able to provide assurance on product quality and on-time delivery. The ONDC should include the right checks and balances to create predictability in the decentralized system.
Also, a strong grievance redress and dispute resolution mechanism must be in place to gain the trust of buyers and sellers. While some of the big e-tailers are offering local language support in their portals and apps, ONDC could play an important role in language localization, voice search and better user experience.
There have been several failed attempts to digitize Kirana stores in the past. The lack of success can be attributed to still-evolving technology as well as low-speed internet, high mobile data rates and low awareness among kirana store owners. Currently, 4G data charges in India are among the lowest in the world at $0.68 per GB. Also, the availability of cheaper mobile phones will help integrate users into the ONDC ecosystem. Raising awareness among local vendors is key to success, however. More importantly, the established e-commerce players participating in the ONDC initiative will be a win-win solution for the entire ecosystem as India attempts to catapult itself into the digital commerce space. Can ONDC replicate the success of UPI, in which the banking sector actively participated? It will be a challenge, but with the active participation of stakeholders, there is hope.
(The author is an ICT professional and columnist based in Bengaluru)