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ONDC wants to give the small seller a platform beyond Amazon and Flipkart. Here's how it is preparing the tech

ONDC wants to give the small seller a platform beyond Amazon and Flipkart. Here's how it is preparing the tech

The open network for digital commerce aims to break the platform-centric structure of e-commerce to establish a model that creates a level playing field for even the small merchants and spurs competition in the space

ONDC is an ambitious initiative by the government to democratise e-commerce in India. ONDC is an ambitious initiative by the government to democratise e-commerce in India.

At the age of 37, Subathraa Vasan left her job as CEO and Vice Principal of Emerald Heights College for Women, Ooty, in mid-2015, to pursue her long-term dream of becoming an entrepreneur. An M. Tech graduate, her interest was in food products made of millets. But having taught image processing for over 15 years, it was a steep learning curve for Vasan to switch from teaching to start selling value-added, millet-based products. “It was an amazing job [of teaching], but still, my mind was in search of an opportunity to get into entrepreneurship. I had a keen interest in food. But food was not my domain of learning, so I spent nearly a year on R&D before jumping in,” says Vasan.

She launched her venture—PVR Foods—in October 2016 with a variety of ready-to-cook food products. Her company started seeing scale after an initial period of hiccups. From there, a natural progression for her budding enterprise was to log on to the digital world of business, but there, the novice entrepreneur was in for a rude awakening. “When I went to the marketplaces, they wanted 40 per cent commission, and I couldn’t offer that sort of margins. They were asking me to increase the price and then give them 40 per cent. I couldn’t go online because of the pricing. When the open network for digital commerce (ONDC) came, I jumped on to it, because here, I am able to sell products for the same price as in physical stores. I can still earn a profit and my customers are happy,” she says.

But it is not just lower commissions that is driving merchants to join ONDC. Take the case of Varun Madan—Founder and CEO of Salad Days—who runs a network of cloud kitchens across Gurugram, Delhi and Noida. He looks at ONDC as a much needed correctional force required to stem the tide of adulterated online buying behaviour. “It is not just about commissions. The whole buying behaviour of customers has changed in a negative manner because discounting is the top filter for all the buying now. Nobody can sell food products at a loss, so either the quality will be compromised, or their prices will be bumped up. The shift from quality to discount is a problem,” he says.

“I believe ONDC is an idea whose time has come.

Vasan and Madan are some of the early merchants who signed up for a pilot on ONDC, an ambitious initiative by the government to democratise e-commerce in India. And both of them are looking at ONDC to solve different seller pain points. For context, at present, about 60 per cent of India’s e-commerce market is controlled by two US-based companies’ platforms—Amazon and Walmart-owned Flipkart. Whereas ONDC is a non-profit company established—along the lines of the National Payments Corporation of India (NPCI) that runs the Unified Payments Interface (UPI) platform—by the Department for Promotion of Industry and Internal Trade (DPIIT). In July 2021, DPIIT had formed a nine-member advisory council to advise the government on measures needed to design and accelerate the adoption of ONDC with a view to create an inclusive and democratic system for digital commerce. It included Infosys Co-founder and architect of India’s unique identity project Aadhaar, Nandan Nilekani; CEO of National Health Authority, R.S. Sharma; MD and CEO of NPCI, Dilip Asbe; and Suresh Sethi, MD and CEO of Protean eGov Technologies (formerly NSDL e-Governance Infrastructure), among others.

“I really believe ONDC is an idea whose time has come. The pandemic has demonstrated that e-commerce is going to be a way of life for Indians. E-commerce is not a winner-takes-all economy. We have to create a way for the small sellers to compete in this new e-commerce world in equitable ways,” Nilekani said at a virtual event organised by DPIIT early this year. The interoperable, open platform aims to bring about structural changes in the current platform-centric e-commerce model so that more ventures like Vasan’s PVR Foods can get a shot at e-commerce and grow. It also aims to change the trend of discount-led online buying so that entrepreneurs like Madan can revive the charm of building renowned brands on the basis of quality instead of discounts.

To that end, ONDC’s community-led network has three basic components—buyer-side apps, seller-side apps, and logistics providers. Buyer-side apps are any applications that will interact with the consumers (on the demand side), and seller-side apps are applications that will interact with the merchants (on the supply side). Seller-side apps onboard merchants on their platforms, and every merchant integrated with any of the seller-side apps is automatically discoverable on all the buyer-side apps on the network.

For now, Paytm is the only platform on board the buyer side, whereas Digiit, eSamudaay, GOFRUGAL, GrowthFalcons and SellerApp are the five e-commerce enablers that are live on the seller side. Logistics players Dunzo and LoadShare are also piloting on the platform, while Grab and Flipkart’s logistics arm eKart are in the final stages of integration. PhonePe, Kotak Mahindra Bank, Microsoft India and CSC Grameen eStore are also expected to join the network as buyer-side apps soon. About 16 seller-side apps are in the final stages of integration while pilots are currently underway across 50 cities. “India could have chosen the path of only regulating, but this is far more practical and futuristic. ONDC wants to create a platform where everyone can play, and how it transforms is very straightforward, that is, good performing vendors/sellers will be rated higher,” says Arvind Singhal, Chairman and MD of Technopak Advisors, a management consultancy firm.

T. Koshy, CEO, ONDC

As of now‚ food & beverages (F&B) and grocery are the two live domains being tested on the network. To demonstrate, a user’s journey will begin with the user clicking on the ONDC icon on a buyer app (for example, on Paytm), which will open up all the available categories. Then, clicking on the F&B icon will pop up a list of restaurants in the buyer’s locality. Users can also search by items or restaurants. Following that, when a user selects an item and places an order, the seller-side app receives it and sends the details to the merchant. After the order is accepted, the seller-side app flashes it to all the logistics partners on the platform, and one of them accepts the task and delivers it. With the project in pilot, the choice of logistics partner is limited, but as the program rolls out, merchants will be allowed to tie up with delivery partners of their choice.

As players with substantial user bases like telecom operators, banks and social media companies sign up for ONDC, a consumer will no longer be dependent on a particular e-commerce platform. They can access the network with their bank, telecom or chat app, or any entity that is a buyer-side partner on ONDC. Whichever buyer-side app the consumer uses, they will have access to the entire list of sellers present on the network.

From the merchant’s perspective, the primary pain point that ONDC solves is of discoverability on the e-commerce platforms. Search results are delivered by them based on the brands that give them more margins, or those that spend more money on advertising on the platform. Merchants who cannot do that have little visibility with the customers. But on ONDC, every registered merchant will be discoverable across buyer apps, irrespective of the seller-side app it has signed up with.

Moreover, the outrageous commissions that platforms levy on merchants exert tremendous pressure on their unit economics. And ONDC promises to ease that. According to partners in the network that BT spoke to, the network has set a 3 per cent cap on buyer-side commission (charged from seller-side apps) while seller-side commission (charged from the merchants) is about 10-15 per cent. Even as the seller-side commissions are significantly lower compared to the 25-40 per cent charged by platform-based marketplaces, ONDC has decided not to enforce a hard cap on commissions and let market forces determine it, says T. Koshy, CEO of ONDC.

To that end, the seller-side apps will have to ensure that commission rates are reasonable and cancellations minimal, as merchants can easily switch to another seller-app due to poor service. “When it [the marketplace model] is unbundled, the buyer-side apps will have to become more innovative and become agents for consumers. They are not pushing any merchant, and, in that way, improving the sensibilities of the consumer and encouraging a lot of small and diverse brands. On the other hand, seller-side apps will have no captive buyers; their reputation is all they have. So, seller apps will go out of their way to help merchants package, present and take care of customer complaints better. These are all elements of a level-playing field,” Koshy adds.

On ONDC, merchants will have the freedom to negotiate better prices with logistics providers while on the e-commerce platforms, they have little control on the service-level agreements. “With ONDC, I can engage with many sellers. It helps me utilise my logistics network well. It also helps me to innovate based on the different kinds of merchants I am working with. On the cost part, I can bring in optimisations into my own network,” says Dalvir Suri, Co-founder of Dunzo and head of its B2B logistics arm, Dunzo for Business (D4B).

But is there a risk of monopolistic patterns emerging in ONDC, too? K. Vaitheeswaran, the founder of India’s first e-commerce company Fabmart.com, feels that the biases that e-commerce promised to remove may creep into ONDC as well. “When search results are based on who spends more, I’m not necessarily getting the choices I want to see. I’m getting the choices that the platforms want to show. It is exactly what happens in a physical store as well. Online was supposed to remove that bias, but it has not happened and, if anything, the control of ‘who sees what’ has gone into the hands of one or two platforms. ONDC’s objective is to break this. At some stage, some brands on ONDC will sell more than some others. Five years later, will the smallest brands still come ahead of the largest brands on ONDC? It is very hard to do that,” he adds.

Shireesh Joshi, Chief Business Officer of ONDC, brushes away such fears and says that the network is interoperable, and so it doesn’t require any merchant to become a part of the largest seller-side app and any merchant can join hands with whoever is providing good service. “Current e-commerce platforms’ thinking is around scale, but on ONDC, scale is available to everyone, regardless of how you are connected. When scale is available to everyone, the focus shifts to experience, and whoever provides the better experience will start to win,” he says.

Joshi adds that the idea is to expand the reach of e-commerce from the current 5-7 per cent penetration, and therefore, the attempt is to attract new people to online buying, and not shift the existing e-commerce users on to the network. Seller-side apps or aggregators will play a massive role in expanding the market by reaching out to retailers who do not have the capacity or capability to initiate e-commerce operations by themselves.

Among the 200-plus entities that the network is in conversation with, at least half of them are looking at a seller side role to play—which is to on-board sellers—and each one is targeting a different geography or profile of sellers. Microsoft (also a buyer-side app), Snapdeal and Zoho are among those in advance stages of discussion with ONDC to on-board as seller-side apps.

Himanshu Chakrawarti, President at Snapdeal, says that the company will launch on the platform from the seller side very soon with three categories—fashion, home, and beauty & personal care. “At present, only 8-10 per cent of the value market is served by e-commerce channels. By FY26, nearly 22 per cent of the value market will be served online. ONDC will help fill this potential by supporting many small businesses to come online, either directly, or through exclusive value-focused platforms like Snapdeal. As more value-shopping comes online, it will provide a bigger addressable market for Snapdeal, and greater access and choice for Snapdeal’s users—both buyers and sellers,” he explains.

ONDC plans to open the network to a wider set of users in locations where it has reached sufficient testing maturity, beginning with one city sometime towards the end of September. “Once the hockey stick growth or network effect starts kicking in, things will move much faster. A simple illustration is the Snapdeal announcement. We were working organically with small players, adding city after city; and reached 50 cities. When Snapdeal joins the network, they will add 2,500 cities,” says Joshi.

ONDC is also building tools such as a reputation ledger where the network-wide reputation data of merchants will be available. It will enable people to have confidence in buying from unknown sellers. Moreover, the redressal mechanism will have a design similar to that of the platforms. When a consumer raises an issue, the buyer application will redirect it to the seller app, and the merchant will resolve it. In instances where they don’t, the buyer applications will administer various consequences and take actions accordingly. From a protocol standpoint, the buyer application can impose a withholding sum on errant merchants and seller apps. For unresolved issues where third-party involvement is required, ONDC is building an online dispute resolution process.

Karthikeyan Arumugham, Founder of seller-side app Digiit, says that the network offers multiple business cases. “A lot of business cases are coming up. Vasan’s PVR foods was started in Coimbatore, and we are now helping her expand it to Tiruppur and Bengaluru. Likewise, a small player operating in one region can expand to more regions without much investment. Similarly, if someone wants to build a business in an unexplored market leveraging the reach of ONDC, it’s an opportunity and people like us can enable them to do so. We are exploring these opportunities,” he adds.

While Digiit is looking at multiple domains including groceries and home decór, GrowthFalcons—the first seller-side app to simulate a complete transaction on ONDC—is banking on the deep dissatisfaction of restaurants with the delivery platforms and focussing on F&B merchants. The company—which offers growth marketing solutions on its services vertical and conversational AI platform on its product side—is now moving its entire product team to work on the ONDC business. “On the product side, we are actually 100 per cent focussed on ONDC. We are not taking second measures, saying what happens if it doesn’t work out. We are very optimistic, and it’s a conscious decision we have taken as a start-up. We will completely focus on this network and being an early adopter, we are confident that we will have decent amount of traction,” says Girish Pai, Founder and CEO.

Such is the confidence and optimism within the ONDC network and outside that the open network will curb digital monopolies and create respectful opportunities for big and small players alike.

 

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