Open Network For Digital Commerce: Reinventing India’s E-commerce Landscape
The global economic landscape is changing, and digital commerce has the potential to give companies a level playing field. It may open up new commercial prospects for many stakeholders, particularly for small companies. The global expansion of digital commerce has been spurred by COVID-19. Digital commerce's percentage of total retail sales increased from 16 per cent in 2019 to 19 per cent in 2020, despite a fall in the mobility and travel services industry. This was due to an increase in business-to-consumer (B2C) sales, which was noticeable in online sales of food, household goods, and medical supplies. Additionally, COVID-19 led to a rise in business-to-business (B2B) digital trade.
The current market structure needs to be changed in order for the general expansion of the digital commerce sector to occur with widespread participation from customers and sellers. At this point, we simply cannot transform it into a store of value if we want to rethink the mechanism to bring the players together with a focus on trust. Though the idea of a "platform of platforms" may seem quite logical, it may not solve the storage, universality, or trust issues. A paradigm shift from an operator-driven, monolithic platform-centric approach to a facilitator-driven, interoperable, decentralised network is required to solve a challenge of this magnitude.
In this context, the Indian government initiative, Open Network For Digital Commerce (ONDC) is a project that non-profit think tanks developed. By putting tens of millions of ‘kiranas’ on an equal footing with online behemoths like Amazon, Google, and India's Flipkart. The program effectively creates an open order book for purchase requests that any store on the network can respond to. The project aims at redoing the digital world and make it more equitable and open to every participant. The goal of ONDC is to provide a digital commerce foundation that includes inventory management, logistics, dispute resolution, and other features. A nationwide rollout is scheduled following a successful launch in five Indian cities: Delhi, Bengaluru, Bhopal, Shillong, and Coimbatore. It further positions open commerce at the forefront and wishes to deliver success stories showcasing non-zero-sum outcomes for businesses and society.
Local businesses, often at odds with e-commerce behemoths over fees and commissions, have embraced this project with excitement. There are currently 200 sellers participating in the ONDC project, coming from a total of 15 cities. Interestingly, ONDC will keep referral commission caps at 3-5 per cent at a later time (for now, it's free), which represents a significant cost decrease compared to what companies currently spend to sell their products online. This is 7 to 10 times cheaper, in accordance with a Gofrugal estimate, than the typical online-selling commission rate of 23 per cent to 28 per cent on the cart value.
Over the next five years, ONDC wants to produce 3 billion monthly orders, 15 billion neighbourhood businesses online, 900 million digital shoppers, and a gross merchandise value (GMV) of $ 48 billion. By late August or early September 2022, ONDC is anticipated to be accessible in more than 100 Indian towns and cities.
Open networks like the internet are supported by open standards. A fundamental set of technological standards permits the linking of many kinds of systems. Effective open networks and standards encourage competitiveness and remove entry obstacles. A collection of open standards akin to India's Universal Payments Interface serve as the foundation of ONDC, which is fundamentally an open network. A platform-centric model, in which the buyer and seller must use the same platform or application to transact, is intended to be replaced by an open network that encourages cross-platform and cross-application interaction and commerce. All market participants can connect and share information using the open specifications and open network protocols provided by ONDC.
However, the rollout of the aforementioned will not come without challenges. ONDC's significant feature remains its ability to connect buyers and sellers on a single platform. Only major firms appear to be entering the seller app ecosystem, even though a few buyer applications are being registered on ONDC. Microsoft, Paytm, and PhonePe are the three buyer applications that have so far joined the network. There exists an emergent need to enlighten the small and medium sized local businesses and individual entrepreneurs of minor cities in the country regarding the project and urge them to subscribe to the same. There is also a lack of on-ground promotion that can ensure the onboarding of neighbourhood stores. Furthermore, companies need to build multilingual versions of these apps, given the vernacular diversity of the country.
Therefore, if implemented efficiently and with relevant safeguard mechanisms in place, ONDC might profoundly alter the rules of e-commerce, usher in a time of open competition marked by less sway from vertically integrated platforms. All the stakeholders would ultimately profit from accelerated e-commerce adoption and the expansion of the global economic pie, including consumers, retailers, and even massive platforms.
This has been co-authored by Ishita Sirsikar and Srijata Deb.