Banks jump on the ONDC bandwagon to draw synergy from the network

The Centre’s efforts to democratise online commerce by creating an indigenous network for buyers and sellers is receiving significant interest from the banking sector, with several lenders picking up stake in the network.

Indian lenders are also looking to set up buyer platforms to draw synergy and create opportunities for the network to be successful.

Nine banks have picked up stake in the Open Network for Digital Commerce (ONDC) network.

Of these, State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Kotak Mahindra Bank, Axis Bank, HDFC Bank, IDFC First Bank, and ICICI Bank own 6.35 per cent stake each in the network. Kolkata-based UCO Bank owns 3.17 per cent stake in the network.

Small Industries Development Bank of India (Sidbi) and National Bank for Agriculture and Rural Development (Nabard) have picked up 6.35 per cent stake each.

It was also reported that the National Payments Corporation of India - the umbrella entity for digital payments in the country - is looking to pick up stake in ONDC.

Banks are seeing ONDC as an opportunity to offer their entire payment stack to players involved in the network and make deeper inroads into the payment and settlement segment because the network, they say, is expected to produce large volumes of credit, debit, merchant settlement, and escrow payments.

Also, with the availability of transaction data through this network, banks will now be able to deliver credit to suppliers, sellers, logistics partners, and the entire supply chain, which, perhaps, is not happening due to absence of data, on which they can base their credit decisions.

This, say lenders, is expected to build a business credibility index for banks to understand more about small and mid-sized businesses, so that they can tap into this segment for their credit needs.

Lenders are also looking at integrating their existing micro, small, and medium enterprise (MSME) customers into the platform, so that they can grow their business with assistance from banks in terms of credit. Subsequently, lenders can offer a full stack of banking products to such entities.

Getting more business, especially from the ever-expanding digital-saving younger generation, is an obvious drive for banks like SBI to join the network, say two senior SBI executives.

“That can only happen when a bank is actively present on a platform (like ONDC), with users transacting even small-value purchases in the digital commerce space. Not being present on a platform which is increasingly becoming the mainstay of a digital revolution will be a threat to retain existing business,” they add.

“As for the system, ONDC, which would work as an open public digital infrastructure, will increase the ease of doing business online,” they observe.

Deepak Sharma, chief digital officer, Kotak Mahindra Bank, says, “As the network kicked off, some banks, including Kotak Mahindra, joined as early participants.”

“Banks play a pivotal role in the economy, more so in trade and commerce. ONDC will see large volumes of credit, debit, merchant settlement, and escrow payments. To build a trust-based network between the buyer and seller, virtual and escrow accounts will be crucial components,” says Sharma.

Further, many banks that have been early adopters of the Open Credit Enablement Network are building goods and services tax invoice and cash flow-based credit decisioning and lending models, which may be extended to the ONDC network, says Sharma, adding, “As the ONDC network rolls out and matures, there will be greater value for all participants across the ecosystem.”

Many banks have moved quickly to enable a buyer’s platform on the network. Recently, private sector lender IDFC First Bank joined the ONDC network, enabling a buyer’s platform to help it discover sellers on the ONDC network as it develops over time. It has also started onboarding small merchants, who are its current account customers, on to a partner application (app) registered with ONDC. The app is expected to help small merchants execute transactions over ONDC’s electronic network and expand their digital footprint.

On the other hand, YES Bank announced its partnership with SellerApp recently to help embrace ONDC amongst the seller segment of its customer base and help increase its digital commerce scope.

“This association (with ONDC) will enable us to positively impact the business momentum of our SME, MSME, and other enterprise customers across India and Bharat,” says Prashant Kumar, managing director and chief executive officer, YES Bank.