Democratising E-Commerce
The proposed Open Network for Digital Commerce (ONDC) could be a gamechanger in India’s bustling ecommerce ecosystem. It will democratise online commerce. The duopoly of Amazon and Walmart-Flipkart will end. This could be ecommerce’s UPI moment. The Unified Payments Interface (UPI) has become a symbol of India’s ability to roll out world-class solutions in digital technology. In 2021-22, 46 billion transactions valued at Rs 84 lakh crore were made on UPI.
Nandan Nilekani, who created the architecture for Aadhar, the biometric-based national identification system, regards ONDC as a vital project. A pilot phase of the ONDC protocol was recently launched in five cities, Delhi-NCR, Bengaluru, Coimbatore, Bhopal and Shillong. Closely involved in the development of ONDC, along with a team of technocrats and government officers, Nilekani has drawn praise for the initiative from diverse quarters, including Anand Mahindra, Chairman of Mahindra and Mahindra.
How will ONDC impact ecommerce giants Amazon and Walmart-Flipkart? Shreya Nandi decoded ONDC’s unique digital architecture in Business Standard shortly after its soft launch: “ONDC will work on the principle of an open network where a buyer and a seller don’t have to be on the same platform to conduct business with each other. Rather, the network will enable them to be digitally visible and transact no matter what platform or application they use.
“Imagine ONDC as a common catalogue or a registry where the seller doesn’t need to follow a separate set of compliances for different marketplaces. Similarly consumers will be able to see sellers from all marketplaces such as Amazon and Flipkart, and even their neighbourhood kirana stores. The aim is to enable large-scale democratisation of digital commerce by providing a level playing field to both large and small merchants in the country. The network will enable buyers and sellers registered with it to be visible and discoverable by adopting the ONDC architecture. Over a period of time, the hope is that this will result in rapid digitalisation of small businesses and consumers. The open network concept will not be restricted to the retail sector but will extend to mobility, food delivery, and travel among others.”
Small traders and retailers complain that Amazon and Walmart-Flipkart don’t give them priority in search results. Discounts on the two ecommerce sites have driven large numbers of kirana stores out of business. They can’t afford to sell goods at below cost price which ecommerce sites can in order to build a large GMV (gross merchandise volume) which boosts their valuation. For example, Walmart bought Flipkart for $16 billion in 2018. The company plans to go public in 2023 at a valuation of $70 billion based on its high GMV.
Amazon has meanwhile tried to scupper the Reliance Industries group’s bid to buy the Future group’s retail outlets for Rs 24,713 crore. The protracted litigation has forced Future into insolvency. Reliance though might still have the last laugh: it could bid to pick up bits and pieces of bankrupt Future for its Jio ecommerce platform in a fire sale during court-mandated insolvency proceedings at a fraction of the price it had been prepared to pay two years ago before Amazon litigated. The loser: the employees and shareholders of Future group companies.
The ONDC initiative could disrupt the ecommerce ecosystem in favour of small sellers and give buyers greater choice. The ONDC’s five-city pilot phase will expand to 100 cities by year-end. Nandi writes: “As many as 150 retailers and five seller platforms – SellerApp, GrowthFalcons, Gofrugal, Digit and e-Samudaay – are currently participating in this exercise. For the pilot, a buyer-side application, Paytm, has been connected with the seller-side app via the ONDC architecture. This means that a consumer can use the Paytm app and place the order with the retailers currently participating in the pilot. Both the number of buyer-side apps and retailers is expected to increase as ONDC is scaled up. Also on board is a logistics provider, LoadShare, for delivering the goods. As more logistics providers adopt the ONDC architecture, consumers will have greater choice to pick a delivery partner according to their budget and requirement.”
The ONDC’s CEO, Thampy Koshy, is bullish about the new platform’s potential to revolutionise user experience in e-commerce. “Our model is platform-agnostic,” he says. “This is unique. It has never been done anywhere in the world.”
Amazon, embroiled in litigation over the Future group’s assets, is treating ONDC with caution. The ONDC team says Amazon and Walmart-Flipkart too can benefit from ONDC’s architecture. An Amazon spokesman responded with studied diplomacy: “We remain committed to the government’s vision of digitising kiranas, local stores and creating opportunities for business across India by simplifying technology adoption to help local stores and businesses contribute to India becoming a $5 trillion economy. We are closely engaging with the ONDC team to better understand the proposed model and evaluate the role Amazon can play to better serve Indian customers.”
India’s $1 trillion retail market is set to grow exponentially, propelled by two drivers. One, an aspirational middle-class; and two, growing purchasing power. For the Narendra Modi government, ONDC serves a purpose beyond democratising e-commerce. The BJP has a large vote bank among kirana owners. Small traders have long been fighting against the predatory pricing of ecommerce giants like Amazon and Walmart-Flikart. Likely to be fully operational in two years, ONDC could be the BJP’s silver bullet before the 2024 Lok Sabha election.
India has over 12 million kiranas. To protect them foreign direct investment (FDI) in inventory-based multibrand online retail is prohibited. Amazon and Walmart-Flipkart have had to resort to convoluted arrangements with designated sellers like Cloudtail (whose contract ended in May 2022) and Appario, to circumvent FDI rules.
If its platform-agnostic model works in practice, ONDC could function as a neutral discovery interface for buyers across multiple e-commerce sites. Just as UPI has helped boost the business transactions of payment companies like PhonePe, Paytm and BharatPe, ONDC could function similarly as a catalyst and facilitator in the digital e-commerce ecosystem.
As Nilekani told Bloomberg: “It’s an idea whose time has come. We owe it to millions of small sellers to show an easy way to participate in the new high-growth areas of digital commerce.”
