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Business News/ Opinion / Views/  Regulation could help ONDC counter an e-com duopoly

Regulation could help ONDC counter an e-com duopoly

The open portal needs a value proposition that appeals to all stakeholders and not just online sellers

Photo: iStockPremium
Photo: iStock

The past decade has seen the narrative around tech platforms evolve from one of laudable innovation to unaccountable concentration of power. Governments began to push back. In many ways, the EU set the Big Tech regulatory agenda with its overhaul of data privacy laws and regulation of online content and the gatekeeping power of big platforms. The Indian government has also initiated a slew of interventions to assert sovereign authority and tighten control. Amid this backdrop, the Open Network for Digital Commerce (ONDC) initiative stands out because it eschews the regulatory route and instead tries to counter the platform power of e-commerce majors like Amazon and Flipkart by instituting an alternative.

As per its promoters, ONDC will decentralize e-commerce, allowing buyers and sellers to transact with one another via multiple apps without being locked into any specific platform. ONDC has defined a set of open network protocols and specifications to ensure that different apps (buyer apps, seller apps and intermediary apps such as ‘gateways’) are able to interact. The broad idea is that this interoperability will foster competition, lower e-commerce entry barriers and thus reduce the ability of large platforms to charge exorbitant commissions from sellers, etc. The promoters cite the open nature of websites and email based on open HTTP and SMTP protocols as an analogy. Open protocols for interoperability are a good idea; however, it is not clear if e-com is as straightforward as interoperable email. This is because it is as much about technological capability as it is about consistent management of customer satisfaction and dispute resolution.

Big e-com platforms thrive in part because they insure the entire end-to-end transaction, from product quality to delivery time, for the customer. The platform’s reputation for reliability matters more than that of various sellers whose wares are listed on it. High-volume platforms are also able to iteratively use data on demand patterns to optimize their inventory and logistical operations.

To successfully ‘unbundle’ an e-com transaction into independent roles of the buyer, seller and logistical operator requires ONDC to ensure not just interoperability, but also overall customer satisfaction. This is where it runs into conceptual problems from an operational and privacy perspective. Unbundling creates multiple handover points between different entities; this means disaggregated responsibility. It reduces control over each transaction and increases potential friction in dispute resolution. In remote online transactions, the chain of responsibility is fuzzy. For instance, who should absorb the cost of foreign chocolates received in a partially molten state? The customer, seller or the logistics provider? Or what if a customer alleges that she received a counterfeit product on a non-refundable transaction? The determination of when to initiate a return/refund is arguably more about customer service policy than it is about arbitrating between the buyer and seller. Big platforms have a clear customer-centric bias, which helps in customer retention while top-down visibility and control over the entire transaction helps them pinpoint failures.

ONDC expects to solve the problem of unbundled e-commerce by instituting an “issue and grievance management" structure to resolve disputes, along with “reputation" profiles of all network participants. While the details of it are not available in the public domain, the viability of arbitration on low-value transactions appears to be low. To win trust, ONDC will have to find a way to absorb the cost of low-value disputes arising from increased friction to make grievance redressal less tedious. One possibility is through a pooled insurance fund for sellers.

The issue of ‘reputation’ is more problematic and raises privacy concerns. The core design principle of ONDC is the disaggregation of deals and interoperability of platforms. This means all customers, sellers and logistics providers must be ‘visible’ through all buyer-side and seller-side apps. In the absence of an underlying repository of trust, interoperability and associated dispute resolution will require a system for what ONDC calls “scoring/badging" of “network participants". Based on ONDC documents, these participants include not just sellers and logistics providers, but possibly also buyers (buyer apps are responsible for buyer ‘KYC’). This scoring/badging will have to be centralized and publicly available to ensure portability across buyer and seller apps. This has potential privacy implications, especially since it is likely that the process will have some in-built immutability so that participants can’t simply make new profiles to achieve a reset. One way to reduce the privacy impact would be to limit scoring/badging to sellers, which will implicitly make dispute resolution buyer-centric. But this would also raise overhead costs.

These are some questions that ONDC must resolve. Its basic value proposition for sellers, as codified in its “business rules", is that they get a better deal vis-a-vis monopolistic platforms; however, can an e-com network thrive by treating customers and sellers at par? If not, would a buyer-centric approach increase overheads to a point where the value proposition for sellers too is vastly reduced? ONDC policies may evolve, but if its objective is to curb exploitative monopoly platform power, then regulation inter alia prohibiting platform conflicts of interest and mandating interoperability and data portability will be required. It is in concert with regulation that ONDC may prove most beneficial by providing a foundation for interoperability and voluntary data portability.

Ruchi Gupta is executive director of the Future of India Foundation. 

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Published: 07 Nov 2022, 10:28 PM IST
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