ONDC can be a game-changer for MSMEs

The Unified Payments Interface (UPI) is poised to cross the $100-trillion mark, but there’s a ministry of commerce initiative which can bring the benefits of digitalisation to a much larger audience: the Open Network for Digital Commerce (ONDC) for hyperlocal transactions. It’s currently focused on empowering local sellers, who have a lesser say in matters of dispute on proprietary platforms, and fundamentally change the way micro, small and medium enterprises (MSMEs) go about their business, adding to GDP growth as well. Paytm, Dunzo, eSamudaay and others are currently on the network.

ONDC is a tech-driven digital commerce infrastructure that’s popularly defined as a marketplace of e-commerce markets.

• It will be an interoperable, standardised digital payment infrastructure;
• It is scalable without affecting efficiency or speed;
• Akin to UPI, all transactions will be conducted through a super app that connects sellers, buyers, payment processors, and logistics partners.

The higher the cost of maintaining a platform, the greater the burden to be borne by the buyer. This is true for many e-commerce platforms. ONDC aims to remove this drawback by bringing together players such as banks and telcos with an existing customer base. The network effects will ensure low seller onboarding costs, translating into lower prices for consumers. With an expanded pool of customers (the target is to on-board 900 million by 2024), it is a win-win for B2C and B2B players.

The gateway platform will prevent preferential treatment to some sellers, which restricts the holistic growth of innovation in an industry. As more players come together to form a competitive market, buyers benefit from gains in quality, lower prices and greater choice. ONDC will act as a balancing power to curb the monopolistic tendencies of a free market.

Existing e-commerce players may also benefit from the ONDC platform, as they can integrate with ONDC as specialist sellers or buyers, and improve the availability of goods for their customers and returns for their sellers.

The ONDC ecosystem has been designed with high-security standards that meet the requirements of both governments and financial institutions locally and globally. It will solve a two-pronged problem: one is the issue of privacy and security of all network users, which tends to discourage the adoption of the digital ecosystem; the other is that of providing credit to small enterprises, artisans, and gig workers.

The bigger picture is that underserved parties greatly support the economy owing to their large base, but the same support has not been reciprocated sufficiently. ONDC will allow small finance companies to provide real-time lending in the form of formats like “buy now, pay later” for sellers’ working capital needs and other financial requirements. Given the seamless connectivity it strives to bring to small businesses across domestic and international markets, the disruption potential of ONDC is enormous.

UPI has revolutionised payments. ONDC can do the same for MSMEs, and take e-commerce’s share to 25 per cent of all commerce by 2024. This will ensure enhanced shopping capabilities by facilitating the adoption of low-cost, interoperable electronic transaction systems across multiple channels and devices. But the current state of the platform is not optimal and requires effort to reach where it is intended. The reasons are:

• MSMEs are being driven by government initiatives effectively acting as an intermediary, which goes against the spirit of aggregation;
• De-aggregation would mean stifling innovation and restricting significant investments by reducing the return on investments in the long run;
• Customer experience may get affected owing to the large pool of inexperienced first-time sellers who will enter e-commerce. 

In conclusion, ONDC will be the next big thing in digital infrastructure. It will revolutionise how people transact, and empower MSMEs with better funding and negotiation options. Sellers will also get greater visibility throughout the network, which is bound to enhance GDP growth, with ONDC expected to contribute $48 billion by 2027. 

The writer is the co-founder of Flexiloans.com