What is Open Network for Digital Commerce (ONDC)? Benefits and challenges explained
2 min read 16 Aug 2022, 12:55 PM ISTEquity research firm Jefferies said in a recent report that compared to the Unified Payments Interface (UPI), ONDC is complex
PremiumOpen Network for Digital Commerce or ONDC is a community-led network that aims to create an open, inclusive and competitive marketplace. Currently, in the platform-centric model, marketplaces have end-to-end control, right from seller on-boarding, customer acquisition, order fulfilment, complaint redressal and managing payments. ONDC will 'unbundle' this complex system into separate microservices that can be addressed separately.
Equity research firm Jefferies said in a recent report that compared to the Unified Payments Interface (UPI), ONDC is complex.
ONDC has already launched a pilot version across five cities—Delhi, Bengaluru, Coimbatore, Shillong and Bhopal. It has roped in eSamudaay (a software company supporting digitisation of local businesses), Gofugal and Digiit (ERP players), SellerApp and Growth Falcon (digital marketing company) as seller apps. PayTm will act as the buyer app. ONDC plans to onboard 150 sellers across the five cities for the pilot. The network plans to go national by August 2022. ONDC is in advanced discussions with over 80 companies for integration including
Paytm, Dunzo, PhonePe, Go Frugal, Growth Falcons and Reliance Retail. The network won't be restricted to retail, but would include food delivery, mobility, wholesale trade, hospitality, travel and tourism.
Jefferies report on ONDC lists some of the opportuinities and challenges
Opportunites
1) Lower entry barriers to promote competition and in turn market growth.
2) Democratisation of the digital commerce space will reduce channel costs for all players, including incumbents.
3) Common seller registry will help expand seller base multi-fold for all players.
4) Portability of reputation will encourage sellers to deliver better customer experience across platforms.
5) Networking effects over time tend to create virtuous cycles of growth like in the case of UPI.
6) If incumbents become a part of the network, it will drive a meaningful adoption.
Challenges
1) ONDC is a complex ecosystem to implement, unlike UPI.
2) Switching customers from the incumbents, which are offering a satisfactory service, will be difficult.
3)Network participants may not make significant market development investments initially.
4) Growth in seller base will not necessarily improve buyer experience on the network.
5) Monetisation on the network is not very clear.
6) Similar models have failed to successfully scale up in the past.
7) Attaining critical mass will be difficult as buyer and seller sides are disconnected.
8) Lack of clarity on accountability, especially in addressing customer complaints and returns.
9) It may take years before the network effect gains significant momentum.
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