scorecardresearchWhy ONDC can’t be a UPI of e-commerce? All you need to know

Why ONDC can’t be a UPI of e-commerce? All you need to know

Updated: 26 May 2023, 08:40 AM IST

ONDC aims to revolutionise e-commerce by removing the monopoly of big players and allowing smaller players to join but may face challenges such as lack of a centralised authority and handling disputes.

The ONDC will protect customers from the monopoly or duopoly.

The ONDC will protect customers from the monopoly or duopoly.

By now you must have checked out ONDC (open network for digital commerce) if you often order food at home. Is it a competitor to Zomato or Swiggy? No. It’s not an app. It is an open and interoperable network on which different stakeholders of e-commerce from customers, e-commerce platforms, sellers, payments providers to logistic players can interact with each other.

The customer can choose just any buyer app to connect with any seller app while choosing a logistic provider of their own choice. That said, not only will ONDC revolutionise food delivery but also other segments of e-commerce.

Key participants of ONDC

There are five key participants on the ONDC platform:

Buyer apps: These are responsible for customer acquisition, search and discovery, and curating the customer experience.

Seller apps: These are responsible for onboarding sellers, managing their catalogues, and order flows. Seller apps could be of two types – a) Marketplace Seller Nodes (MSNs) such as Zomato, Swiggy or Meesho which allow sellers (who are not themselves network participants) to transact on the network. They do not hold any inventory. They are aggregators.

Inventory Seller Nodes (ISNs): ISNs are themselves sellers such as restaurants or small business owners. They don’t have to be a part of a marketplace. They can bypass aggregators to directly sell to customers.

iTechnology Service Providers (TSPs): TSPs such as Zoho and Protean help other stakeholders to become part of the ONDC ecosystem.

Logistic players: Logistic providers such as Dunzo, Delhivery and Grab will be responsible for taking delivery requests from sellers to deliver it to customers.

Online Dispute Resolution (ODR) providers: ODRs such as Credgenics and Cadre will be responsible for settling queries, disputes, refunds, and returns.

Who owns ONDC?

It is a non-profitSection 8 company, an initiative of the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce, Government of India.State Bank of India, Bank of Baroda, Punjab National Bank, Kotak Mahindra Bank, Axis Bank, HDFC Bank, IDFC First Bank, and ICICI Bank have picked up stakes in ONDC.

How customers will benefit from ONDC?

The ONDC will protect customers from the monopoly or duopoly. For example, customers don’t have to visit Myntra, Amazon, Flipkart or Meesho separately. They can check out sellers on Flipkart via any buyer app and choose the most cost-effective one.

How small businesses will benefit from ONDC?

Small businesses can directly join ONDC. They don’t have to approach an aggregator. It will give them an opportunity to be visible to all customers on ONDC platform.

Is ONDC a threat to marketplaces?

While the core concept behind ONDC is to replace the platform-centric e-commerce from an open network, it will complement the existing e-comm platforms if they become part of it. For example, Meesho, an e-commerce platform has joined ONDC as a buyer app.

“The integration with ONDC will amplify our efforts in making e-commerce more inclusive. It will fuel discoverability of products for consumers while creating a wider market for hyperlocal suppliers. The difference between the key categories for ONDC and Meesho has turned out to be a good learning ground, especially for a horizontal e-commerce platform like ours,” says a spokesperson of Meesho.

It will be interesting if big e-commerce players such as Amazon, Flipkart, Zomato and Swiggy become part of ONDC.

Challenges in ONDC

ONDC is being heralded as the UPI of e-commerce. The way UPI connected all stakeholders in the payments space through an open network, ONDC is supposed to replicate the same for e-commerce players.

“UPI scaled up only because all banks came on board and the fact that they were already connected in other ways. UPI offered them a convenient avenue to facilitate the same connection. In ONDC, the network hasn’t been built yet. Companies building such networks on ONDC could be the most successful ones on ONDC,” says Shreyans Nahar, co-founder and CEO at Finsire, a lending solutions provider.

Second, handling disputes could be challenging due to lack of a centralised authority. Third, currently Amazon, Myntra and others bear the cost of returned goods and the logistics involved. It is expensive, especially for low-ticket products. It is unclear how this will work out on ONDC.

“ONDC might be decentralising the e-commerce ecosystem, it will end up recentralising the power in a few hands. There could be a master of all buyer apps, a master of all seller apps, a master of cold storages and a master of logistics recentralising the decentralisation,” says Nahar.

Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.


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First Published: 26 May 2023, 08:40 AM IST