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When Open Network for Digital Commerce (ONDC) was conceptualised around three years ago and launched in January last year, it was meant to break the stranglehold of e-commerce giants — Amazon, Flipkart, Zomato, Swiggy and their Peers.
One year down the line, some milestones have been achieved. And a lot is riding on its success. A McKinsey report said ONDC will enable a five-fold rise in India’s digital consumption to $340 billion.
As per an Antler report, it will unleash an $80-billion opportunity for startups. As per Redseer, it will generate $250 billion to $300 billion in gross merchandise value.
However, after being off to a promising start, inevitable challenges have come up, which must be overcome to make ONDC a viable tech spine in a country where web commerce is increasingly becoming a leitmotif of consumerism. But first, the cold stats. Annual transactions for the current financial year to March 1 have touched 41.2 million.
This is a near eightfold increase over its projections during the proof of concept stage. When ONDC first raised funds in September 2021, the projected annual transactions for FY24 were only 5.63 million.
ONDC had raised Rs 180 crore in 2021-22 from 19 private and public institutions, including banks, stock exchanges and government bodies such as Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD) who invested Rs 10 crore each.
The network had commitments of up to Rs 230 crore at the time and has an authorised capital of Rs 1,500 crore. The network makes it easier for smaller players to get onboard without paying a hefty commission — unlike some e-commerce platforms — and choose a logistics player and payment partner from several available on the network. However, the challenges that the network did not expect are that new entrants to e-commerce need support to start operations, and that first mover startups need assistance in scaling up their operations.
While seller apps onboard merchants, buyer apps are customer facing where orders can be placed. Buyer apps demand a critical mass of products, sellers and products. ONDC also realised that synergy with categories like financial services and mobility is key to value generation. It has recognised more action is needed to resolve conflicts and challenges faced by different domains to ensure growth. The network hopes to increase e-commerce penetration in the country to 25 per cent in the next couple of years.
Eating Swiggy & Zomato’s lunch?
Last year, the network created social media buzz when it offered discounts on food and beverage orders. Screenshots of bills for food ordered on ONDC-compatible platforms were also shared. Industry experts said ONDC was trying to outprice their competition, and many asked whether it would be sustainable in the long run, as ONDC is funded by public banks and financial institutions. The network simply said it was supporting a cold start with incentives.
“Our incentive schemes are public and diverse, and is meant as a catalyst. The good thing is that many sellers in the network are now excited about the freedom that they have to come out with their own schemes and offers, much more competitively,” said T Koshy, the chief executive of ONDC.
At least a few hundred brands on ONDC today have their own interesting offers whether it is food and beverage, or other domains.
The order source
The network has scaled up rapidly to clock 2.6 lakh orders per day. “A few days ago, we hit a peak of 2.87 lakh orders per day,” Koshy said. Another aspect the network can boast of is that more than 60 per cent of its orders are from tier-2 cities.
“Orders are coming in on a regular basis from Jammu, Kashmir, Leh, Ladakh and Arunachal Pradesh too,” Koshy said. Starting with a small base in September 2022 through a beta launch in Bengaluru, the network has slowly expanded its footprint across both products and services.
Today it’s live in various sectors like grocery, FMCG, food and beverage, ride-hailing, agriculture products, fashion and apparel, health and wellness, beauty and personal care, electronics and appliances, home and kitchen, business-to-business transactions, exports, metro ticketing and financial products.
Categories in the pipeline include industrial equipment, medical and lab supplies, toys and games, books and stationery, sports equipment, automotive supplies, fibre and yarns, travel, wellness and care, tourism and entertainment, legal services, repair, maintenance and at-home services and warehousing.
Monthly orders on the network have risen from 1,000 in January last year to 82 lakh in March this year. From 8,500 sellers then, there are more than 3.8 lakh now, of which non-mobility accounts for 1.05 lakh.
However, sources from Pai Platforms, which was earlier Paytm E-commerce, which is both a buyer app and a seller app on ONDC, had earlier told ET that one of the primary challenges currently faced is enhancing its supplier base.
Many sellers found on popular platforms like Swiggy, Zomato or Amazon are not yet on ONDC, they added. Incorporating more significant players with extensive reach is seen as a beneficial move. Pai is focused on broadening its array of offerings, including top restaurants like those found on Swiggy and Zomato, to attract more users, they said.
The million-dollar question
Dilip Vamanan, co-founder of SellerApp, which is one of the earliest seller apps to be onboarded on ONDC, told ET in March that the company estimates to cross 50,000 orders.
“Outside of Amazon and Flipkart, sellers are able to generate some consistent orders, which is good. Sellers have started understanding there’s a new channel, and brands, B2C, D2C and CPG, are considering this to be important,” he said.
However, the million-dollar question is, how can you generate a business out of it, given that e-commerce is operation-heavy. “I don’t think even the core business units of Amazon and Flipkart have been profitable. So, how does one make a business out of it? That is something nobody understands,” Vamanan said.
“We have 18 to 20 people dedicatedly working on ONDC. The one per cent (commission) of the average order value of 50,000 orders this month will not even cover the cost of one or two developers we’ve hired.”
The scale required to break even and then become profitable is a very long shot, he said. For running dayto-day operations, one will need to look at external funding, he said. “Unbundling will generate more data for the sellers, and this will give an edge to sellers in the coming years,” he added.
Additionally, there are also issues of settlement that still need to be resolved on the network, he said. Magicpin, which is both a buyer and seller app on ONDC, had started with the food and beverage domain and created a SaaS platform, and became a technology service provider for buyer apps.
“We took out our front end and created an ONDCin-a-box experience for any large buyer app to just drop that experience into their app. We started with Paytm. It gave visibility to ONDC on its homepage, but when you click on that, you would land into an experience that would be powered by Magicpin,” said chief executive Anshoo Sharma. “We’re the largest seller app in the food ecosystem.”
Unique QR codes
Recently, for facilitating direct communication between customers and sellers on the network, ONDC introduced unique QR codes. This makes it easier for customers to reach their favourite sellers on the network through any buyer application on the network.
Sellers could share it on their storefronts, socials, business cards, websites and ads to expand their reach. From 24 network participants, there are now 81. While the network was active in three domain categories to start with, it has risen to 13.
The cities or districts that gave more than 100 orders per month in the last three months labelled as ‘countable cities’ by the network rose to 622 in March, covering almost all of India, which is an increase from two serviceable cities.
In February alone, mobility accounted for 52.8 per cent of the 71.14 lakh orders on the network, which means there were 37.56 lakh mobility orders and 33.57 lakh non-mobility orders, accounting for 47.2 per cent of the total monthly orders.
“On the buyer side, Paytm, Snapdeal, Magicpin, Pincode, Mystore, Rapidor, NoBrokerHood, Ola, and nStore are big. These are buyer apps who have brought meaningful volumes of orders to the network. There are many more who are scaling up their presence,” Koshy said.
The network estimates orders in March to be over 80 lakh. Buyer apps in the mobility sector include Namma Yatri, Yatri Sathi, Yaary, Rapido and Redbus. Some potential buyer apps expected to offer mobility services on ONDC in the future include Google Maps, Paytm, NobrokerHood and PhonePe.
“The peak that we saw in one day in mobility was 1.6 lakh rides. In the mobility sector, we have more than two lakh drivers. We have autos in six cities, cabs in three, and metro in two cities. In some cities, we have autos, taxis and the metro on the network,” Koshy said.While Chennai Metro is already live, Kochi Metro should also go live anytime.
“Among the 15 metros in India, many are in active discussions with ONDC to go live, including Kanpur,” he added. Shan MS, chief growth officer at Juspay, the company that developed Namma Yatri (it has completed over 3.06 crore trips and has 2.51 lakh drivers), said that Juspay’s approach has been different from other mobility platforms.
“We empowered our drivers to provide superior customer service and earn more. We are a tech enabler, not an intermediary. Transitioning from a commission-based to a subscription based model is just one example of our commitment,” he said.
In non-mobility retail purchases in March, food and beverages accounted for 20 per cent, fashion for 12 per cent, grocery 10 per cent, home and kitchen seven per cent, beauty and personal care five, health and wellness three, and electronics accounted for two per cent of the orders. More than 16,000 network participants are in various stages of integration with the network.
Some of the top brands, companies and platforms that have been onboarded include Ola, Spar, Wow Momo, ITC, Sleepy Owl, Hindustan Unilever Limited (HUL), McDonalds, Marico, Biryani Blues, Leaf, Giva, Dunzo, nStore, Domino’s Pizza, Paytm, Mystore, Boat, Pincode, P&G, Magicpin, Namma Yatri, and the Kochi Open Mobility Network.
“We are looking for many more large enterprises that have a large buyer base to come onboard the network. If bankers come onboard on the buyer side and the seller side, adoption of financial and nonfinancial products will be faster. Common Service Centres only recently came onboard. Now we can expand to rural areas faster,” Koshy said.
Companies like Ola are live on ONDC, both as a buyer app and a logistics service provider. Tata Digital recently started its pilot testing with its super app Tata Neu as a buyer app in the food and beverage domain. HUL plans to onboard its network of more than 10 lakh retailers and kirana stores across India to ONDC to be able to make all products of the store, not just of HUL, live.
Some of the upcoming brands that will soon be available on the network include Aditya Birla, DMI Finance, Google, Nivea, Pepsi, Patanjali, Fynd, Chai Point, Ninjacart and Whirlpool.
Multinational companies like Google and Meta are also leveraging ONDC. Google Maps will soon enable consumers to book metro tickets. Google Cloud’s ONDC startup accelerator will also help startups use Google’s AI and large language model with ONDC. A programme was also recently launched for small ONDC sellers to promote using platforms of Meta — Facebook, Instagram and WhatsApp. Conversational buyer and seller apps will be built using WhatsApp soon.
Beyond typical e-commerce, handloom traders say their monthly revenue on ONDC is almost Rs 2 lakh, higher than their revenue on Amazon and Flipkart where they earn between Rs 10,000 and Rs 20,000.
Farmer benefits
More than 5,900 farmer producer organisations (FPOs) have also been onboarded on the network who have facilitated more than 30,000 transactions.
Small Farmers Agribusiness Consortium (SFAC) and NABARD are onboarding FPOs enabling market linkages and increasing farm incomes. Farmers can access information on specific local mandi rates of various types of produce and get direct access to multiple mandis, or to modern trade retail, enabling them to sell their produce directly at better prices.
Farmers can also purchase quality input materials like seeds, fertilisers, pesticides, and harvesting tools online, which have been optimised for price and quality through the open network.
Digitally routed payments make cheaper formal credit accessible to farmers. When farmers log into buyer apps in their respective vernacular languages, depending on region, weather, and soil, they are connected to services such as crop planning, and demand forecasting, and are given input advisory.
There is a programme being planned by the ministry of micro, small and medium enterprises (MSME) to onboard more than two lakh MSMEs in one year on ONDC.
This will help increase their reach and discoverability in global markets at lower costs. Rather than building each capability on their own, unbundling could provide MSMEs with access to specialised services.
By improving price discovery, it will also enable cost-efficient transport systems for exports and imports.
SIDBI is enabling self-help groups and clusters of artisans to access e-commerce via ONDC. The network has also initiated financial services across four categories: Credit, insurance, investments (mutual funds), and additional products (gift cards exclusively redeemable on ONDC).
“About seven successful transactions have taken place where credit was given to creditworthy individuals in the last few days,” Koshy said.
While for individuals, this facilitates unsecured personal loans, for proprietors, it facilitates MSME seller financing. Some early adopters include EasyPay, Tata Digital, DMI Finance, ABFL, Rapidor and IndiaLends.
Insurance Dekho, Policy Bazaar, Kotak General, BAGIC and Nivesh are expected to come on board offering motor, health, and marine insurance.
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