ONDC will reshape e-commerce, lowering barriers for small businesses amid ongoing hurdles

Digital commerce, right now, is a space dominated by a few major players. Hence, to revolutionise e-commerce, the Government of India, in December 2021, launched the Open Network for Digital Commerce (ONDC). Designed to promote open networks using open-source methodology, open specifications, and open network protocols, ONDC is independent of any specific platform. The goal was to democratise digital commerce, enabling small retailers and businesses to participate in online marketplaces.

“Every product or service that can be catalogued should be available on this network,” T. Koshy, MD and CEO of ONDC, tells Business Today. He emphasises the transformative potential of the platform. “In the current world, when you join a platform, you are visible only to users of that platform. If you want to be visible to customers on multiple platforms, you have to manually make yourself visible on each one,” he adds. Calling it a ground-breaking concept, Koshy says that what is significant with ONDC is that once one makes themselves visible on the network, any buyer using any buyer application can see them.

ONDC aims to replicate the success of the Unified Payments Interface (UPI). With ONDC, India will be the first country to integrate micro to small businesses into the digital economy at a low cost, reducing the entry barrier.

And in a short period of time, ONDC has onboarded prominent players like Ola, Meesho, Khojle.com, Domino’s, and Namma Yatri, among others, either through the seller or the buyer side.

The platform has now forayed into the fintech space, facilitating fully digital and paperless loans in six minutes. The new offering is integrated with nine buyer applications (also known as lending service providers) and three lenders, marking a significant milestone in its mission to enhance accessibility and efficiency in credit services.

The buyer applications include easypay, Paisabazaar.com, Tata Digital, Invoicepe, CliniQ360, Zyapaar, IndiPe, TyrePlex, and PayNearby. The lenders include Aditya Birla Finance, DMI Finance, and Karnataka Bank. The initial product of this initiative is unsecured credit for both salaried and self-employed individuals.

ONDC’s figures show impressive growth. Koshy, in an earlier interaction with BT, had shared that the platform had witnessed about 1,200 transactions in January 2023. But by May that year, transactions had surged to over 1 million a month, and in July 2024, the network recorded approximately 12 million transactions.

As of Q1FY25, ONDC had reached more than 1,200 cities with close to 0.6 million sellers on the network and had 72 seller apps. In the first quarter of 2023-24, the platform had 31 seller apps. And with 22 buyer apps in Q1FY25, ONDC recorded a significant increase from the year-ago period, when the count was only nine.

Pradeep K. Sampath, Co-founder and CEO of nStore Retech Pvt. Ltd underscores the importance of widespread participation for the network’s success. “The key is incorporating as many participants as possible. They, whether buyers or sellers, must engage with the network as nodes. As the number of people and their respective ecosystems grow within the network, the potential for success increases,” explains Sampath. nStore Retech is an integrated digital order-to-delivery and customer engagement solutions company that has been associated with ONDC since its inception.

The road ahead

Despite its promising start, ONDC faces significant challenges. The dominance of e-commerce giants like Walmart-backed Flipkart and Amazon, which hold 48% and 35% market share, respectively, according to reports from RedSeer and Mordor Intelligence, poses a substantial hurdle. ONDC’s market penetration stands at just 4.3%, even with strong support from the government.

Sources in the know say that there is a pressing demand for private investment to accelerate the platform’s growth and enhance its presence. The complexity in understanding the network could pose another challenge.

A seller app partner noted that while ONDC has not yet matched the success of the other platforms, there is considerable room for growth. On the buyer side, issues with product availability and limited selection persist, highlighting the need for greater consumer awareness. “How many in our circle are aware of ONDC and use it?” questions the partner, on condition of anonymity.

Bhavik Vasa, Founder of GetVantage, a fintech platform that connects financiers and investors to MSMEs, urged patience. “As you look back, all digital public infrastructure, even Aadhaar, in its early days had friction, with things not working and other issues. But I think what we could try—and all of us as players are trying—[is] to work as catalysts. If we can give UPI to the world, ONDC will [also] be something significant, but it needs some time,” he says.

Lakshmi Venkatraman Venkatesan, Founding and Managing Trustee of Bhartiya Yuva Shakti Trust, a platform for Indian youth to turn their business ideas into profitable enterprises, emphasised ONDC’s potential to empower marginalised communities, including women, especially those residing in remote areas. However, she points out a significant knowledge gap. “Our survey revealed that 44% ofthose surveyed cited a lack of awareness about online businesses,” she says.

Concerns also lie in the integration of big brands like Domino’s and KFC, especially because the platform was created to help smaller players. But Koshy reassures that the network was created to provide equal opportunities for all enterprises, big or small, highlighting that 80% of merchants are small sellers.

“We make a lot of effort, directly by us as well as through multiple agencies, to help these small enterprises. While they get the same position in the market [as the big ones], they should have the capacity for making good catalogues, good packaging, and good logistics,” Koshy says.

For too long, sellers have struggled to establish a digital presence, constrained by platform limitations. But recently, ONDC launched an interoperable QR code that Koshy says will empower every seller. Now, sellers can display their QR codes anywhere—on storefronts, products, marketing materials, or on social media—instantly connecting with customers both offline and online.

For consumers, it offers convenience: a quick scan with any QR scanner app or ONDC buyer app (currently Paytm and magicpin) links them directly to the seller’s online store through their preferred buyer app.

Before the launch of ONDC’s interoperable QR code, sellers were either not online because of demand generation costs, or had to pay a high revenue share on other platforms. Now, with this tool, they can drive their own growth in affordable ways.

With a big base of sellers connecting a large number of buyers, ONDC aims to provide increased viability for products and services, thus bridging the technology gap, while generating revenue.

Stakeholders believe ONDC is here to stay, but they also highlight that it will take some time.

While challenges remain—from ensuring trust and credibility, effective integration with the network, to capital infusion—the platform represents the country’s idea of inclusivity. Will it become the next UPI that the world will want to follow? For that to happen, we need to keep our fingers crossed. 

@PalakAgarwal64