There’s huge news coming in from the Indian e-commerce industry! To put it succinctly, the government is all set to give Jeff Bezos a run for his money (estimated at USD 152 Bn at the time of publishing).
Despite increasing internet and smartphone penetration, it’s no secret that small and medium businesses in the country have lagged behind. As a result, they’ve been dependent on just two major aggregators - more specifically, India’s two e-commerce behemoths, Amazon and (Walmart-owned) Flipkart. Sellers accuse these platforms of meting out preferential treatment, alleging that they share consumer data and potential business to only those sellers these companies partially or fully owned.
In response to these complaints, the government soft launched the Open Network For Digital Commerce (ONDC) in April this year. The logic behind it is simple - it matches the online consumer’s demand with the nearest available source of supply, no matter which aggregator it’s on.
So why are we talking about this now?
Because the government is now in talks with some of the country’s biggest banks - State Bank of India, Axis Bank, Punjab National Bank, ICICI, HDFC, Kotak Mahindra and IDFC First to name a few - to set up ‘buyer platforms’ to let their customers place orders for goods and services over the ONDC. The platforms will allow the banks to promote use of their cards, loans, and other services.
The UPI moment for e-commerce?
The ONDC is essentially an open network that will provide open source protocols for cataloging, vendor matching, and price discovery, in order to provide equitable opportunities to all stakeholders, be it sellers or consumers.
Let’s understand this with an example. With ONDC, buyers and sellers can enter transactions no matter what e-commerce portal they are associated with. So if seller X is registered on Amazon, and the buyer is registered on Flipkart, the buyer can still purchase X’s products from the network without having to register on Amazon.
This is similar to how PhonePe and Google Pay work. Both leverage the Unified Payments Interface (UPI), which is why someone with a Google Pay account can send money to someone with a PhonePe account. (Side note: Google is reportedly in talks to join the network, and Google Pay competitors Paytm and PhonePe have already joined).
Taken from: https://www.medianama.com/2022/03/223-ondc-strategy-paper-summary/
Sure, the intentions are honorable. It’s meant to level the playing field - giving equal access and opportunity to everyone from the big names to the kirana store down the street. Buyers too, get a wider array of choices.
But intentions, as we all know, aren’t quite enough.
The ONDC is bound to face several challenges once fully operational.
First, is the question of responsibility. Amazon and Flipkart have developed state-of-the-art systems to track deliveries and prioritize sellers who fulfill orders most effectively. Who keeps track within the ONDC? Who takes responsibility for delayed deliveries or fake products? Who looks after returns and exchanges?
Then comes the obvious problem of small businesses and their lack of resources and technological expertise. While the ONDC is set to digitize small businesses and their supply chains, getting them to sign up will be a challenge without a comprehensive awareness program. What’s more, they lack the resources to offer the discounts and deals extended by their more established counterparts and e-commerce portals.
But the toughest challenge, in my opinion, will be that of winning consumer trust. There’s a reason why consumers flock to Amazon and Flipkart. Quick delivery, great service, reliable quality…how will the ONDC match up to all they have to offer and shake their legacy? Are its targets - signing up 900 million buyers and 1.2 million sellers on the shared network within the next five years - a tad bit too ambitious?
All the right noises have been made, it's now time to see how a public protocol stacks up against billions of private corporation dollars.
That’s a wrap from me for now - before you go, take a look at what we at FinBox have been up to:
Aparna Chandrashekhar writes on Lending for Bharat: How WhatsApp, APIs and sachet loans will bring credit to millions of Indians
Shamolie Oberoi gives digital lenders the lowdown on how to acquire new customers without burning marketing dollars
Anna Catherine explores how Equated Daily Instalments can bring formal credit to 4 crore MSMEs
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See you next week! Cheers, Mayank