Introduction: what is ONDC and why it is a game-changer for India
India’s digital commerce industry is growing rapidly. From around US$38 Billion in 2021, it is expected to touch US$120 Billion by 2026 (source: KNN India), and possibly cross US$200 Billion by 2029 (source: India TV News). Given the country’s demographics and internet penetration, digital commerce is still an underserved market in India. Thus far, its biggest beneficiaries have been large monopolistic marketplaces/platforms because of the massive investments needed.
But there is a change in the air. Technology-led innovations such as India’s Open Network for Digital Commerce (“ONDC”) are creating open, network-centric digital commerce models to compete with existing platform-centric models. ONDC promises to revolutionize the country’s digital commerce landscape by democratizing access/participation. Over the next few years, the transformative effect will be similar to what UPI has done for digital payments.
ONDC is a public infrastructure project being executed by a non-profit organization under the aegis of the Government of India’s Department for the Promotion of Industry and Internal Trade. In April 2022 pilot projects began in five Indian cities; 100 cities are to be covered by the end of August 2022. A number of public and private sector banks (e.g., SBI, PNB, Kotak Bank, Axis Bank, HDFC Bank) have already invested in ONDC.
The “my way or the highway” approach taken by many proprietary e-commerce platforms has led to predatory practices. Smaller businesses are disadvantaged because they inherently lack bargaining power vis-à-vis these e-commerce marketplaces/platforms. ONDC aims to create a level playing field for thousands of small businesses across India as well as customers living in rural areas and smaller towns so that they can all benefit from digital commerce.
ONDC is effectively a platform that allows you as a consumer to search and buy products/services that are currently offered only on multiple marketplaces, without having to log into each of them. You can conveniently browse and buy products that are listed on Amazon, Flipkart, Meesho, Myntra, Neu, or indeed anywhere else- using just one app. As a seller, registering on this platform gives you access to customers of multiple marketplaces. There is no need to list on multiple marketplaces, be tied to specific delivery partners, or comply with the different requirements of these platforms.
The main beneficiaries of ONDC
ONDC is designed to benefit three main categories of stakeholders:
· Small businesses/suppliers of goods and services, who can access a larger market;
· Customers across India (especially those in smaller towns and rural areas), who will get greater choice and better prices; and
· Banks, who get another chance to be a relevant intermediary in digital commerce (both in the retail and SME space).
Since the launch of UPI-based payments in 2016, proprietary payment platforms owned by non-banking players such as Google, Amazon, PayTM, etc. have accounted for a majority of digital payment transactions, especially in the retail space. Banks found themselves left behind. Both sellers/merchants and buyers/consumers are banks’ traditional customers, but third-party digital apps have effectively disintermediated them. By registering on ONDC, banks can offer solutions to both sets of customers. Banks get the opportunity to efficiently monetize their relationships with customers- a key source of competitive advantage in an increasingly digital, ecosystem-driven world.
ONDC will give banks access to a much larger base of prospects and customers; it will also allow banks to offer these customers a larger bouquet of products/services (both banking as well as those offered by partners on the network). For example, banks can target retail customers with offers related to insurance, wealth management, loans, deposits, etc. Just as important is the opportunity that ONDC will provide banks to deepen their relationships with Current Account customers. India’s SMEs in particular have begun to gravitate towards fintech players and if this trend intensifies, it can spell trouble for corporate banks. Given that ONDC is designed to attract large numbers of SMEs, it affords banks a good opportunity to build and strengthen their relationships with customers in this segment by offering a larger portfolio of services, including working capital loans, Capex loans, export credit, etc.
Thus, banks that choose to be part of ONDC can expect to capture greater mindshare (and hence, wallet share) of customers who choose to be active on the ONDC network. Given the “all-digital” nature and national/global reach of the ONDC, banks no longer need to worry about catering only to “local” customers (whether retail or corporate). Across segments, ONDC can help banks reduce costs of customer acquisition and service delivery, thereby boosting profitability and margins.
Banks will need to upgrade their technology stacks to benefit from ONDC
To offline merchants/sellers, banks either offer QR codes or PoS-based payment solutions or Open Banking based Payment Gateways to e-commerce players. Therefore, banks need a deep integration of their mobile apps with those of partner merchants and/or aggregators to enable customers to use their mobile banking apps. The objective is to build stickiness for the banks’ mobile apps, but the absence of an industry-standard protocol makes this expensive and time-consuming.
All this will change with ONDC. Instead of direct integration with merchant apps, banks will need the capability to connect with the ONDC platform using a standard Beckn protocol, which is an “open, interoperable and universal transaction protocol to enable a decentralized digital economy,”(source: beckn). This will enable customers to use the bank’s app to:
· easily register on the ONDC platform and discover products/services;
· search for products/services they need using criteria such as geo-location, sellers, price ranges, etc.:
· Make purchases; and
· Manage returns and resolve disputes more easily and speedily.
Provided banks are ready with the necessary technology components for ONDC, they can thus deliver access to a wider range of products/services as well as a smoother customer experience.
Merchants joining ONDC will expect banks to provide a complete Digital Commerce solution that seamlessly integrates offline/online registration on the platform with transaction experience and banking services such as collecting customer payments and paying suppliers. Banks that are able to offer merchants the following capabilities on the platform will benefit:
· Upload product details and manage catalogs:
· Accept orders and track sales
· Manage inventory
· Handle returns and process refunds
· Pricing and bundling of offers
· Manage loyalty/rewards programs etc.
In order to benefit from the new ONDC-powered digital commerce paradigm, banks will need to upgrade their technology stacks. They will need to acquire pre-integrated platform capabilities that are compliant with the requirements of the ONDC framework.
ONDC will consciously address data security/privacy needs
Inherently, a digital commerce public infrastructure will require the capture and exchange of a wide range of demographic and transaction-specific data. This is true of ONDC as well. However, the framework intends to ensure security, privacy, and confidentiality through several measures:
· All data relating to transactions will reside only with the buyer and seller’s apps registered;
· While ONDC will ensure security/credibility at the transaction level, it will not store/view transaction data;
· Personally Identifiable Information, as well as sensitive competitive information that is critical to trade, will be protected from access by third parties;
· Over time, ONDC will evolve data exchange policies that are consent-based and for only specified purposes.
Some of the above are still to be clearly defined and will evolve over time. However, ONDC clearly intends to be at the vanguard of global data security and privacy. Its intention to adopt Data Empowerment and Protection Architecture will be a major step toward giving individuals control over their data “by operationalizing an evolvable regulatory, institutional and technology design for secure data sharing”.
Conclusion
ONDC represents an opportunity for banks to regain their mojo in a world where digital commerce has become the norm and relationship dynamics between banks and their customers are changing rapidly. Early movers will be able to maximize brand/app visibility/awareness, recall/use, and advocacy. To do so, banks will need to acquire the necessary adaptors, connectors, and other technical elements that enable fully-compliant integration with the ONDC framework. Upgrading their technology stack can be done in-house, but will be expensive and time-consuming, besides being riskier than using proven third-party products and services. Speed of adoption is of the essence, in order to optimize RoI.
To learn more about how Wibmo’s solutions can help your bank get off the blocks quickly in your ONDC journey, write to: sales@wibmo.com.