ONDC to present opportunities to India’s local retailers

Introduction
India is the world's second-largest digital economy in terms of internet users and is expected to surpass US$ 350 billion in Gross Merchandise Value (GMV) by 2030, overtaking the United States of America and China as the third-largest online retail industry in the world. The global economic landscape is changing, and digital commerce has the potential to give companies a fairer and more inclusive playing field. It may open new commercial prospects for many stakeholders, particularly for small companies. Moreover, COVID-19 led to a rise in business-to-business (B2B) digital trade. In India, the retail industry is made up of about 1.2 crore Kiranas, 90% of which are unorganised or self-organized and the majority of which are digitally excluded. Digitally influenced shoppers and online shoppers have both seen significant increases in recent years, with the former reaching 260–280 million and the latter 210–230 million in 2021, respectively. Over the following ten years, it is predicted that these figures will climb by 2.5 times, along with a nearly 6-fold increase in online retail spending. Almost 60% of the market is currently under the hands of e-commerce giants like Amazon and Walmart's Flipkart which has been brutal for Indian mom-and-pop retailers in the last decade. As of September 2020, India is predicted to have 4.25 crore Micro, Small and Medium Businesses (MSMEs) that can prosper with innovative sales and marketing activities but are not part of this digital revolution. With the goal of democratising e-commerce in India, the Government of India has created the Open Network for Digital Commerce (ONDC), a one-of-a-kind initiative whose pilot has already been launched in 5 cities. The objective of the non-profit organisation, which was established in April of 2022, is to increase market access for producers, buyers, and suppliers of ancillary services.

ONDC
ONDC is a non-profit organisation whose network will allow products and services from all participating e-commerce platforms to be displayed in search results across all network apps. The platform-model has historically been used in e-commerce. Under this approach, the platform, which serves as the central entity, manages every aspect of the value chain, including vendor onboarding, order flow management, fulfilment and logistics, payment collection, complaint resolution, and client acquisition. But in contrast, the ONDC Network is decentralised which is a network-centric approach where buyers and sellers can trade regardless of the platforms or applications they use if they are connected to this open network.

The ONDC is being established with the following objectives in mind:

• Be a facilitator with minimal public digital.
• Build with scale efficiency and adoption. 
• Encourage interoperability to build an open, inclusive, and competitive marketplace.
• Open the door to innovation for reinventing digital commerce.
• Guarantee rapid digitization of MSMEs and consumers.
• Make online shopping convenient for small businesses.

This paradigm transition from a facilitator-driven, interoperable, decentralised network to an operator-driven, monolithic platform-centric model that offers the following benefits:

• Encouraging widespread involvement, especially from small and medium-sized businesses and hyperlocal merchants (Kirana) from across the nation.
• Making it possible for value to flow more easily than to be stored, i.e., moving away from “central platforms storing and trading value” and towards “a decentralised network of interconnected ecosystem actors managing the flow of value.”
• Dealing with discoverability and trust across platforms and irrespective of platform.
• Providing buyers and sellers with autonomy.
• Instead of pursuing the idea of one universal platform or platform of platforms, the fragmented platforms should be unified to overcome the inherent problems with the platform concept.
• Align the network, platform, and end-users’ incentives so that the group only succeeds because of the success of the end-users.

Significance of ONDC
The retail-commerce sector has been trying to figure out how to compete successfully with the burgeoning e-commerce giants for almost a decade. Local retailers, offline vendors, and Small to Medium Sized Businesses (SMBs) are still fighting to gain access to the power now held by a select few e-retailers. Additionally, pandemic-related uncertainty and more challenging operational conditions have increased the popularity of internet buying, placing local vendors at the disposal of this duopoly that is governed by a small number of powerful companies. The necessity to give customers the best of both worlds in terms of both online and offline ways of buying has become urgent in the post-pandemic era as they start returning to offline establishments to shop in person. And it is in this area that the Open Network Digital Commerce (ONDC) and other new tech-led solutions are expected to play an increasingly significant role in the future years.

The ONDC platform is based on three foundational pillars:

• Open Network

Scaling and developing open protocols that have already undergone testing and achieved proofs of concept accelerating community-based participation through open-source APIs will lead to accelerated innovation and adoption. A novel, decentralised design that promotes collaboration and interoperability.

• Public Digital Infrastructure

Low-cost digital infrastructure that can scale to billions of users as is intended to be shared by both buyers and sellers and used for digital commerce transactions.

• Open Ecosystem

An integrated group of innovators who collaborate to develop new tools and possibilities for  voluntary adoption and community-led development facilitated by ONDC.

• The ONDC Network (in the middle) is made up of network members who join ONDC as buyer-side apps, seller-side apps, or gateways. These members come together to form the open network.
• ONDC Network Services (on the right) – This section displays the standard network services that will allow users to conduct transactions on the network and make up the digital infrastructure that ONDC provides.
• Additional networks (on the left) – Displays additional open networks that it can smoothly interact with, such as the Open Credit Enablement Network (OECN) in other domains.

Opportunity for Key Stakeholders in ONDC

The value proposition for various stakeholders in the digital commerce value chain is as follows:

• Sellers
  • Access to additional consumers, which increases growth potential.
  • Much easier and cheaper ways to find businesses and their products.
  • Flexibility in terms of choosing how to be visible online.
  • Reduce business expenses (better prices and margins in the long term).
  • A wider range of value chain service alternatives (such as logistics) to facilitate corporate expansion.

• Buyers
  • Availability of more sellers, leading to greater options (sustainable and improved price discovery in the long term).
  • Higher service standards and quicker deliveries as a result of hyper-local shops' accessibility.
  • Improved client experience and expanded opportunity for innovation.

• Technology Platforms
  • Supporting users on buyer/seller applications can help digital commerce thrive.
  • Simplified time to scale and time to market.
  • Concentrate on the specialised area—customer or seller acquisition—while your network partners concentrate on various facets.
  • New possibilities for start-ups to promote innovation along the value chain of commerce.

Government Initiatives in the E-Commerce Space

• Consumer Protection Act, 2019 (CPA)

The CPA was created to safeguard customers from dishonesty on the part of companies they buy goods and services from. By outlawing unfair business practises (including deceptive advertising) and unfair contracts and defining who is responsible for what in a transaction, the CPA gives consumers some ex-ante protection. For instance, the product's vendor is always responsible for any damages. The CPA also establishes the criteria on which a customer may file a complaint against a company and offers a venue for such complaints, namely the consumer courts.

• Consumer Protection (E-Commerce) Rules, 2020

These regulations, created in accordance with the CPA, specify the responsibilities and duties of e-commerce firms and the sellers that conduct business via them with regard to consumer protection. To help consumers make educated judgements about purchases, the E-Commerce Regulations make certain disclosures to consumers mandatory (e.g.: displaying the product price, country of origin, manufacturing date etc.). The Regulations also impose a duty on the E-Commerce business to guarantee the accuracy and comprehensiveness of the information given to a buyer. The E-Commerce Regulations also mandate that any seller using an e-commerce firm must set up a grievance redressal process. Additionally, they forbid price discrimination and price manipulation, which mandates fair treatment of consumers.

• Legal Metrology (Packaged Commodity) Rules, 2011

According to these Regulations, it is required that a seller and the e-commerce organisation show specific information so that the customer can make an informed choice when buying packaged goods. For instance, the buyer must be notified about the size of the commodity, the date of manufacture, the retail sale price, and the number of products being sold.

• Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 [abbreviated as Intermediary Rules, 2011]

All organisations that serve as intermediaries in the flow of information through telecommunications networks are subject to the Intermediary Regulations of 2011. (Including the internet). It includes clauses designed to shield all website visitors from being deceived for financial gain and forbids anyone from jeopardising the security of computer resources to which they are not meant to have access. A suitable grievance redress process must also be established by data intermediaries in accordance with the Rules in order to manage complaints regarding such violations.

• Payments and Settlements Systems Act, 2007

The Act establishes the guidelines for all Indian payment systems. To facilitate payment collection, e-commerce entities work with payment aggregators or payment gateways in accordance with the PA/PG Guidelines, 2020 (Guidelines on Regulation of Payment Aggregators and Payment Gateways, 2020) issued by the Reserve Bank of India under the Payments and Settlements Act, 2007. These rules serve as the cornerstone of the current payment and settlement processes utilised in e-commerce. The Guidelines enable trust-building measures like trigger-based pay-outs, the option to withhold a portion of the payment, the capacity to recover payments made inadvertently or in the event of a contractual breach, etc. by allowing two transacting parties to jointly define settlement terms.

Challenges of ONDC

• In contrast to UPI, ONDC requires a complicated ecosystem to implement.
• It will be challenging to convince clients to leave the incumbents, who are providing a good service.
•  Initially, network players might not make large market development investments.
• Expanding the seller base will not always result in a better user experience for network users.
• There is some ambiguity regarding network monetization.
• Given the divide between the buyer and seller sides, reaching critical mass will be challenging.
• There is a lack of accountability, particularly when handling returns and client complaints.
• It can take a while for the network effect to really take off.

The Road Ahead
The emergence of brands and vertical commerce platforms will meet the unique requirements of each market niche and customer group. There are many chances to help these brands give their customers the most seamless purchasing experience possible. There is a considerably larger base of 250K online merchants and 20M retail-focused SMEs that require support, even though the phrase "D2C" conjures up an image of the 400+ VC supported digital-first brands. The ONDC will "showcase for the entire world how open commerce may lead to beneficial non-zero-sum outcomes for business and society." Moreover, the need for logistics will undoubtedly increase, and if the government can complete its ambitious goal to build logistics parks and use public-private partnerships through ONDC, it will significantly streamline the Indian logistics industry, increase efficiency, and save prices.