Revolutionising e-commerce

ONDC is an ambitious initiative by the Government of India to enable e-commerce inter-operability. Here are its promises and challenges.

- ANAND TANDON

Online e-commerce transactions in India (approximately $70 billion) are still in single-digit percentage of overall retail despite the rapid growth witnessed in recent years. The entry of Jio made data affordable and COVID increased the share of online dramatically. Despite this, e-commerce has yet to penetrate large parts of the country. A key reason for the lack of penetration is the dependence on a few platforms.

Amazon, Flipkart and others have done a remarkable job of on-boarding millions of buyers and sellers, yet it remains a herculean task to do this at population scale. Also, creating a two-sided market (finding both buyers and sellers) is a high-cost business. This reduces the number of participants that can afford to develop this market. High cost of cost of market development and a duopolistic market structure encourage the creation of market silos. A buyer on one platform cannot buy from a seller of another platform, reducing overall transactions but protecting the economic margins of the platform.

Operating silos are not as common as it seems at first sight. A cheque issued by one bank can be encashed by another. Similarly, an email sent from one 'client' (say, Google) can be received and read in another (say, Outlook). A recent example of interoperability is UPI, where one can pay using one platform and receive using another. What distinguishes these platforms from those of e-commerce and what would it take to make things platform-independent? Enter ONDC.

Open Network for Digital Commerce (ONDC)

Email inter-operability works so long as every email frontend uses SMTP (simple mail transfer protocol) to communicate. Similarly, any bank using the UPI protocol can participate in funds transfer. ONDC is the newest attempt by the Government of India (and perhaps a unique attempt in the world) to create a protocol to enable e-commerce inter-operability.