Questions about ONDC

The scope for disrupting Big Commerce is untested

The Open Network for Digital Commerce (ONDC), a not-for-profit initiative by the Department for Promotion of Industry and Internal Trade, started with the well-intentioned objective of offering an open-source inclusive ecosystem for small and medium retailers who lack the wherewithal to engage with dominant app-based platforms such as Amazon, Flipkart, Swiggy, or Zomato. As a means of offering sellers and buyers a level playing field to Big Commerce, especially in small towns, the ONDC can be seen as a welcome expansion of the competitive landscape of e-commerce, which currently has just a 6 per cent penetration in India. If the excitement on social media is any indication, food and grocery retailers, the two items that started out as pilot projects on the ONDC last year, offer significant discounts on food items ordered via the ONDC compared with Swiggy and Zomato, suggesting the creation of a viable alternative to these private equity/venture capital-backed giants. Even so, how far the ONDC can disrupt Big Commerce remains an open question for the foreseeable future.

The immediate issue is one of depth of coverage, discoverability, and the opportunity for a consumer to compare products and prices across a range of offers. The ONDC is not an app in itself and can be accessed only through platforms such as Paytm and magicpin. This may change since a clutch of fintech and banks were expected to join the network as buyer-side apps but are yet to do so. Signs of a lower-than-expected traction can be had from the fact that Paytm said it might forgo the 3 per cent commission it charges as a buy app to stoke customer participation. Also, the Big Commerce players are now being invited to join the platform, a development that contradicts the original intention of facilitating small retail. In this context, the moot point is whether the ONDC is the “UPI moment” for Indian e-commerce, as is being projected.

There is some room for doubt. Though both initiatives continue to be underwritten by the government, the nature of transactions is different. UPI meets a deeply felt demand for an easier alternative to cash payments and is a closed-loop transaction; an e-commerce deal is more complex, involving a range of after-transaction activities such as delivery and after-sales service. Where Big Commerce also has elaborate back offices to handle consumer complaints, returns, and refunds, these services may not be readily available for consumers accessing goods via the ONDC. This may become a sticking point as the network expands beyond food and grocery to consumer electronics and apparel. Consumers may have to directly deal with sellers or logistics firms, which may not be equipped to handle such situations.

The less anticipated value of the ONDC may lie in the business case for the emergence of rival apps such as magicpin that seek to focus on hyperlocal business, charging commissions that are significantly lower than Swiggy or Zomato, and for third-party logistics providers such as Dunzo and Shiprocket. Their success will depend on how well they manage costs and establish credible back-office services for merchants, creating a complementary network rather than competition to Big Commerce.