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Ecommerce as a sector will become irrelevant: ONDC chief

The CEO of the Open network for digital commerce scrolls down Pay app to a section tagged ‘ONDC’ to order a salad from a nearby restaurant. It’s too early and the eatery isn’t open yet. But it’s a place T Koshy says he occasionally orders, mainly to demonstrate how ONDC works.

The network is a de facto online commerce inclusivity platform for small merchants, and most importantly, India’s counterweight to the dominance of large investor-fueled online marketplaces and aggregators. (ONDC is also testing a mobility or taxi booking feature in Kochi.)

“The problem ONDC is trying to solve is not just a problem in developing countries,” Koshy said. “Nowadays (the dominance of e-commerce giants) is a problem everywhere… these guys have gotten so big it’s uncontrollable.”

While the seller’s side on ONDC is busy with a rush to get small traders on board, the buyer’s side is sparse, with only Paytm Mall fully on board and walking pilots. IDFC First Bank and PhonePewill also soon be launching ONDC-compatible shopping platforms, their spokespersons confirmed.

Still, Amazonand flip cardthat control about two-thirds of the Indian digital commerce market remain elusive.

Koshy seems imperturbable.

“In the future, anyone who has anything to sell – products or services – will make their catalogs visible on this common network (ONDC), either themselves or through a third-party aggregator or technology service provider,” he says.

“So everyone will have trade; there (will) not be a separate need to have an e-commerce business… Amazon will also exist, Flipkart will also exist, (but) they will all become part of this common pool.”

In other words, “E-commerce as an industry is becoming irrelevant.”

Prepare for take off

Since April, ONDC has been testing grocery and food deliveries in select cities – categories Koshy says are the most difficult to crack.

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“We picked up the very hard ones (to start with) — groceries and food — because these can only be hyperlocal. And that’s very painful,” he says. “We wanted to see (how) a hard thing could work.”

Once ONDC opens to the public this month, Koshy could search any compatible buyer app for a salad. Paytm was the first to launch an ONDC platform for shoppers, followed by IDFC First Bank. PhonePe confirmed that it will soon be launching a consumer-oriented app as part of the ONDC network, and that it will be tested first in Bengaluru.

Kotak Mahindra Bank, which acquired a 7.84% stake in ONDC in March, is also expected to launch its buyer app soon, Koshy said. (Kotak did not immediately respond to questions about his ONDC plans.)

ONDC Workflow

Because ONDC is designed as an open protocol, a seller’s catalog is visible on any buyer application running on the same protocol. Koshy draws parallels with the Internet and with email networks that allow people to communicate with each other on different platforms.

“That is what ONDC stands for: unbundled interoperability. We have created a language to talk to each other.”

Restaurants, grocers and sellers of other goods are typically aggregated through entities such as: GoFrugal, eSamudayand snap deal in merchant-side apps. They will be visible to all buyers on platforms like Paytm, allowing shoppers to decide who to buy from.

However, such “democratization” does not mean that certain entities on ONDC cannot have a greater market share than others, Koshy emphasizes. “It doesn’t depend on the scale of your captive users, but on the specialization and innovation you have.”

A particular app for buyers could therefore focus on, for example, street food, compiling the menus of all restaurants according to the ONDC protocol. Another entity may want to specialize in a more niche category, for example wedding products and gifts, and all relevant catalogs from a common pool of merchants will be available to its buyers.

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When a buyer searches for a product or service, offers from multiple sellers in different apps are displayed on their preferred ONDC-compatible app. Once the buyer selects a particular product or service from a seller, the order will reach the chosen seller and be executed by service providers that are part of the ONDC network.

In the last week of August, there were about 250 merchants on board in about 60 cities.

In terms of deliveries, ONDC has: ship missile, DunzoeKart , Eco Express, load shareand Grab as logistics partners.

With the addition of inter-city logistics players and aggregators such as Shiprocket, Ecom Express and eKart, ONDC will go live nationally once it comes out of the closed pilot.

ONDC . Partner Network

Handling disputes

Each entity that joins ONDC must sign a standard, non-negotiable network-wide agreement on all existing and evolving network policies. Failure to comply with this policy would result in fines and suspensions, Koshy said.

“Once we test an app for protocol compliance, we put its name in a registry and only (entities) in the registry can talk to each other,” Koshy says.

For example, a seller who was once banned for selling fake items would not be able to list on any other ONDC platform.

ONDC is working to set up an online dispute resolution mechanism in a few months, including enabling third-party ODR (Online Dispute Resolution) platforms. “We will have a network-wide reputation score.”

A seller who sells low quality, fake or damaged products will have lower scores, visible to the buyer. Also, the number of issues, grievances and disputes against each seller network will be posted on the ONDC periodically, leaving it on the seller’s side to encourage real sellers and provide transparency to the buyer.

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The network effect

Koshy expects ONDC to have an exponential impact on digital commerce in India, especially as more small merchants gain access to credit as they go online and become part of the organized sector.

“Market penetration in digital commerce will increase. Today the buyer’s side is about 4% and the seller’s side is about 1% penetration – this is all going to change,” he says.

According to the Commerce Department’s India Brand Equity Foundation, the gross value of e-commerce commerce, or the total value of all goods sold online in India, will reach $350 billion by 2030, from about $60 billion in 2021.

“E-commerce continues to reach a scale where it affects nearly every industry from food to insurance to construction materials, with IBEF estimating the online retail penetration of 10.7% by 2024,” said JM Financial in a report titled ONDC: Disruption or Evolution.

“This means that the shift to digital is inevitable and the government is trying to ensure that this shift creates value for all participants in the ecosystem.”

Koshy proposes ONDC as the ultimate equal opportunity vehicle.

ONDC will create “a democratic marketplace where everyone has the right to offer what they are good at, specialize in what they are good at, innovate and take a position… If you have something better, you get more business,” he says.

“An ideal situation would be when no one cares about e-commerce.”

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