ONDC goes live later this month. What will it take for it to succeed?

ONDC aims to create an open, inclusive and competitive marketplace for ecommerce, unlike the present platform-centric models where companies like Amazon and Walmart-owned Flipkart have end-to-end control, from seller onboarding to customer acquisition Illustration: Chaitanya Dinesh Surpur

In April, Woolly Farms received a notification that a Bengaluru-based buyer was in need of a handful of coriander. The five-year-old startup, which uses urban spaces and sustainable practices to grow vegetables, accepted and delivered the goods to a delivery boy who arrived at their location.

It was the very first transaction in the country, albeit a pilot one, completed through ONDC—the Open Network for Digital Commerce—conceptualised by the Ministry of Commerce.
 

ONDC aims to create an open, inclusive and competitive marketplace for ecommerce, unlike the present platform-centric models where companies like Amazon and Walmart-owned Flipkart have end-to-end control, from seller onboarding to customer acquisition; order fulfilment to complaint redressal and payments.
 
“Think of it as us building the roads, while the vehicles—cars, buses, taxis—are the various stakeholders [buyers, sellers, logistics players and payment partners] who will come on board and use the roads and infrastructure that we have built,” says Shireesh Joshi, chief business officer at ONDC.

In the case of Woolly Farms, the buyer logged on to a “buyer application”—Paytm, in this case, which has partnered with ONDC—and searched for “coriander”. The app threw up various options from multiple sellers, including those not listed on Paytm but listed on other platforms as well as those from small sellers who have registered on ONDC. Normally, he would have to search separately on separate apps before finding his desired sprig of coriander. The buyer saw Woolly Farms’ offering, liked it and chose to go with it. He added the product to his cart, chose a delivery provider from the options available and paid for it, again using the options provider among the listed payments partners.
 
By “unbundling” the transaction into separate micro-services in this manner, different entities are able to pick up and carry out different services. If successful, it will help weaken the monopolistic hold of Amazon and Flipkart – which dominate 63 percent of ecommerce in India, increase competition and accelerate growth. Nandan Nilekani, architect of the India Stack and part of ONDC’s advisory council, calls it the “most exciting business transformation happening in the world”.
 
At present, pilots are on in 21 cities across India, including Delhi-NCR, Shillong, Bhopal and Coimbatore, besides Bengaluru. The service is set to go live with real customers in select cities later this month. And by 2024, ONDC hopes to bring 30 million sellers, including small merchants and kirana store owners, and 300 million shoppers on to its network.

“If you think about it,” says Joshi, “e-retail is just about five to six percent of India’s total retail. This is despite e-commerce being around for 10 years now. Obviously large parts of the country have been left out by Amazon, Flipkart etc. That’s what we’re trying to change with ONDC.”
 
The reason for this low penetration is the limited reach of ecommerce in rural markets, platform-centric models’ approach to limiting transparency, independence and discoverability of sellers, and high entry barriers that limit new competition, says Vivek Maheshwari, managing director at Jefferies.

So what will it take to make ONDC a success and ensure that e-retail penetration does, in fact, increase?

To begin with, it would require the participation of all players. Buyers and buyer applications, sellers and seller applications; logistics players; and payment partners.

At the moment, Paytm is the only buyer application [from where buyers can log into the ONDC network to make a purchase] that is part of the network. While Amazon, Flipkart and Meesho are in talks with ONDC, says Joshi, they are still not part of the network.

Snapdeal has been in the news for becoming the “first e-commerce marketplace to debut on ONDC” but they have joined from the seller side, not the buyer side. This means that sellers on Snapdeal can also sell on ONDC to customers browsing from other platforms like Paytm. However, buyers on Snapdeal cannot enter the ONDC network through the company’s platform.

On the seller side, ONDC has onboarded seven seller applications that help individual sellers onboard themselves onto the platform. SellerApp, a Bengaluru-based data analytics startup that provides sellers with insights needed to power their ecommerce operations, is one such “seller application”. They have been onboarding 2-5 sellers every day on to ONDC for the last three months, says Dilip Vamanan, co-founder, SellerApp. Wooly Farm was one of them.
 
Additionally, a handful of logistics players has onboarded on to ONDC, including Shiprocket, Flipkart’s Ekart and most recently, Reliance-owned Dunzo. A handful of payment partners has also onboarded on to ONDC.
 
As the pilots roll on and ONDC plays out multiple scenarios, such as buying one item from one seller and another from a second seller, buying an item and returning it, processing refunds and exchanges, the absence of the larger marketplaces like Amazon and Flipkart on ONDC appears to be a red flag.  
 
When asked why Amazon has still not joined the network, a spokesperson for the company wrote to Forbes India, “We are excited by the potential that ONDC brings to scale up online commerce in India. We see multiple opportunities for Amazon to engage with ONDC and we are excited to partner with them, so as to bring more customers to the convenience of online shopping and more small businesses to grow digitally.”
 
However, the “real reason” for Amazon, Flipkart and the like not joining ONDC as yet is because “there’s no clarity on the architecture of ONDC as yet,” says a senior employee at Amazon on the condition of anonymity.
 
He explains, “Say you want to buy a laptop. You go on to ONDC [through a buyer application] and search for “HP laptop”. ONDC has to search the laptops that sellers on Amazon/Flipkart etc have listed, direct sellers have listed and some small sellers have listed and show you the results. But each of our marketplace platforms use different coding mechanisms. Amazon could be Java, Flipkart has something else, and a small seller could have a basic layman’s HTML.”
 
“Everybody needs to be speaking the same language. If I’m speaking Urdu, the next one is speaking Parsi and the third one is speaking Tamil, how can you expect ONDC’s algorithm to search for these listing and display them?” he says.
 
“Second,” he continues, “let’s agree that we speak the same language and onboard on ONDC. When you search for an HP laptop, what is the basis of the results that ONDC is going to display? Will you show the Flipkart search first or the Meesho, Amazon, smaller seller search first? What is the logic? We don’t have clarity on the architecture of the algorithm that is being built. That is where the struggle is.”
 
That said, ONDC is in regular talks with these marketplaces to address their concerns. “Everyone is trying to work towards building a solution. Does Amazon want to be on ONDC–the answer is yes. But it all depends on ONDC saying this is our final architecture. Some of the medium and larger sellers will have the capital to recreate their marketplace with a different set of codes and get it integrated on to ONDC. But smaller sellers who have done a basic HTML coding might not have enough money to do a fresh set of coding,” he says.
 
But with Paytm and Snapdeal among the larger companies already on board ONDC, it’s a matter of time before the others join, say analysts. If buyers are flocking to a new avenue to purchase goods it only makes sense for sellers on Amazon and Flipkart to be present at that avenue, else they lose out.
 
Says Joshi, “I think what will happen as the initial lot comes live, others will see the example and be far more encouraged to join. In any new transformation there will always be the innovators and early adopters and then looking at them the early majority joins, then the late majority, and eventually the laggards.” Moreover, over the next 12-15 months, as more buyers and sellers take to ONDC the architecture will become clearer.
 
Scaling up, therefore, might not be as lighting fast as it was in the case of the Unified Payments Interface (UPI), the electronic payments network that was launched in 2017 shortly after demonetisation.
 
While ONDC is oft referred to as “India’s UPI moment for ecommerce”, there are more differences than similarities. The latter include “population-scale inclusion” or the desire for the entire country to become a part of something and second, the idea of “interoperability”. Just as two parties can have different bank accounts and yet send and receive money to each other through UPI, so also, with ONDC, the intent is that ecommerce needn’t require the buyer and seller to be on the same app or platform to complete a transaction.
 
The differences, however, run deeper. “In UPI, there is only one SKU (stock-keeping unit)–money. And the only variable is quantity,” says Joshi. Money is transferred electronically and there is no concept of returns, refunds or replacements. In the case of ecommerce, though, physical goods need to move from one place to another, conditions of transportation and/or storage need to be kept in mind in the case of certain goods, and return and refund requests are all too common. “From an operational standpoint, there is a great deal to be solved for in ONDC, which did not need to be solved for in UPI,” says Joshi.
 
That said, he expects ONDC to see significant traction by the end of this calendar year and by the middle of next year, and transacting in this manner will be “business as usual”, he says.
 
Sure enough, India has a strong track record when it comes to championing digital infrastructure. The Aadhaar digital identity system, which is now used by 1.3 billion Indians, is a case in point, as is the UPI system that enabled 6.3 billion online transactions last month. Just as UPI has become a textbook example of how to power digital payments in a country, the world will be watching to see how ONDC plays out. It might well usher in the next era of retail in India—and beyond.