ONDC is a win-win game for everyone, including the marketplaces. It could empower consumers and businesses alike, and truly democratise e-commerce.
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THE celebrated English singer-songwriter and musician John Lennon’s seminal song, Imagine equips us to traverse possibilities.
Imagine, if you may, that you walk into a market, say the famous Manish Market in Mumbai or Sarojini Market in New Delhi. As you are hurriedly browsing through the stores because you have limited time and you need to leave soon, you realise that all the good vendors have been deliberately prohibited from displaying their products close to the main entrance of the market. Worse still, you are told that you can only buy from certain vendors and not from others.
Once you walk out of the market after shopping from some of the not-so-good stores close to the main entrance, you realise that it was not a good bargain after all. The market was manipulated to push out mediocre products, and you, as a customer, were forced to buy below-par products without a good discount and the good vendors with better products were unfairly prohibited access to customers like yourself.
What is a major competition issue plaguing the e-commerce sector?
Superimpose this onto the e-commerce space in India. Often, the sellers’ side and the consumers’ side have raised concerns about the tactics allegedly employed by the market intermediaries as by the traditional marketplace in the above example. The Competition Commission of India (CCI), back in 2020, published a detailed study called Market Study on E-Commerce In India, which made certain serious observations on some of these alleged tactics, including:
- e-marketplaces wearing the dual hat of a marketplace and facilitator, and also a seller in that very marketspace (directly or through affiliated entities);
- marketplaces using the humongous data that they have access to, to come up with their own white label products; and
- marketplaces give more visibility to certain ‘preferred’ sellers who have special commercial arrangements with the marketplaces at the cost of other sellers.
The CCI observed that these strategies affect a huge majority of traders who are trying to build small businesses from their home cities, which in turn jeopardises the fundamental growth strategy India wants to adopt, that is, through the expansion of the small- and medium-scale industries and businesses. This also adversely affects customer experience, similar to what you just experienced in Manish Market or Sarojini Market.
Also read: Why the proposed amended Consumer Protection (E-Commerce) Rules are problematic
We beckon you to Imagine again. Can you imagine a single digital railroad where all of e-commerce in India exists? Say, you want Lucknow’s famous ‘chikankari’ salwar kameez. You pick up your phone and search through any of the marketplace apps such as, for example, Flipkart. The results that you see are, surprisingly, not only of the sellers listed on Flipkart but include: (a) independent chikankari sellers from Lucknow who have directly listed on such a railroad; (b) sellers listed on other marketplaces like Amazon (no, we aren’t joking!); (c) an independent brick and mortar store at Manish Market or Sarojini Market that sells chikankari work; and also (d) sellers who have listed on Flipkart.
ONDC is an initiative designed to foster open networks for all aspects of the exchange of goods and services over a digital network. Unlike a traditional platform/marketplace driven model where the marketplace is at the centre of the value chain, ONDC is completely decentralised.
Wowed by the possibilities, you choose a seller in Lucknow. However, before making the payment, you realise that the seller does not provide any delivery service. What now? Again, do you go through the familiar route of calling up the seller and convincing them to book a courier which you would pay for? No, you instead book a logistics service provider, say Delhivery or DTDC courier, which is also listed on the same railroad.
You may say I’m a dreamer! But I’m not the only one. Open Network for Digital Commerce (ONDC), designed by the Union government on the beckn protocol (an open set out protocols/specifications), promises to do exactly that.
What is ONDC?
ONDC, set up as a not-for-profit entity under the Companies Act, 2013 by the Union government’s Department for Promotion of Industry and Internal Trade, is an initiative designed to foster open networks for all aspects of the exchange of goods and services over a digital network.
ONDC is not an application, an intermediary, a marketplace or a software. Instead, it is a set of protocols or specifications designed to promote open interchange and connections between shoppers, technology platforms and retailers. The open protocol is similar to IMAP (Internet Message Access Protocol)/SMTP (Simple Mail Transfer Protocol), used for e-mail interoperability, and HTTP (Hypertext Transfer Protocol), used for the world wide web.
A closer-to-home example is the Unified Payments Interface (UPI) built over IMPS (Immediate Payments Service) protocol. UPI itself is not an app, but it can be embedded across payment apps which are interoperable and allow seamless payment across bank accounts.
In essence, ONDC aims to integrate the entire ecosystem of e-commerce in India, making them interoperable. Unlike a traditional platform/marketplace driven model where the marketplace is at the centre of the value chain, ONDC is completely decentralised. The below diagram aims to explain the difference.
Source: Open Network for Digital Commerce: Democratizing Digital Commerce in India, January 2022.
Who are the players involved?
(a) Buyer apps (or ‘buyer nodes’): These are network participants (on ONDC) that handle buyer-side work-streams/operations such as customer (buyer) acquisition, search and discovery, and give functionality to the buyer to place orders. This would include typical marketplace apps including Flipkart and Amazon.
(b) Seller apps (also known as ‘seller nodes’): These manage seller-side work-streams and operations and can be of two types:
(i) Marketplace seller nodes: These allow sellers (who are not themselves network participants) to transact on ONDC. They do not hold any inventory, and function as pure play marketplaces. This would include typical marketplace apps including Flipkart and Amazon.
(ii) Inventory seller nodes: These are themselves sellers who are also participants on ONDC. This would include direct-to-consumer brands that also operate apps such as boAt or any other retail sellers.
The ONDC railroad is structured such that one network participant can play the roles of both a buyer and a seller on the ONDC platform.
(c) Gateways: This is an innovation of the ONDC systems. Gateways will be the entities (that are also network participants on ONDC) that shall send out search queries once a customer searches for a product, and will fetch the responses they receive from the central ONDC registry. Treat it as the search engine of ONDC which will carry out the core function of making this system interoperable.
ONDC allows both the buyer app and the seller app to offer the responsibility of the order fulfilment. Fulfilment terms include details of whether the item can be delivered or whether the buyer has to arrange for a pick-up.
In a typical scenario, when a customer searches for a product, the buyer app will push out the search request, and the gateway will send this request out to the universe of e-commerce entities listed on ONDC and will fetch results from among the potential sellers.
Source: Open Network for Digital Commerce: Democratizing Digital Commerce in India, January 2022.
How does it work?
Search and discover
A customer searches for a particular product using any buyer app on their mobile. The buyer app transmits this search query to the gateway. The gateway performs a search on the ONDC registry to identify seller nodes (which shall either themselves sell or list sellers that sell the product/service matching the search criteria). The gateway then multicasts the search query to all such seller apps. The seller apps further transmit the search request across their respective sellers to check whether the product is available; accordingly, the responses are again sent back through the gateway to be displayed to the customer on their buyer app.
Placing an order
The seller app conveys the quotation and terms of sale for a particular product, along with their fulfilment terms to the buyer app, and the buyer app displays this to the buyer. On receiving the search results on the buyer app, the customer can click on a listing post suiting their requirements, thereby making it similar to the user experience for a traditional e-commerce platform.
ONDC allows both the buyer app and the seller app to offer the responsibility of the order fulfilment. Fulfilment terms include details of whether the item can be delivered or whether the buyer has to arrange for a pick-up. After adding the products in the shopping cart on the buyer app, the customer is informed of the logistics/delivery charges, convenience fees, and packing charges, if any. The buyer then completes payment and confirms the order.
The moment the payment is made, and the order is confirmed, a “transaction-level contract” (an ONDC innovation) is created, and digitally signed by the buyer app and seller app. This contract contains all the rights and obligations of both the buyer app and seller app in relation to that order, including settlement terms and commissions.
Order fulfilment
As highlighted above, either the buyer app or the seller app can choose to fulfil the order, that is, deliver the product. In some cases, even the customer can choose to get an order picked up; for example, in case of a local seller who is directly listed on ONDC as an inventory seller node, the buyer app/seller app may not be involved.
If either the seller app or the buyer app chooses to take the obligation of delivering the product, they are free to decide their mode of delivery, that is, through their employees, agents, or an outsourced logistics partner. If they do not have an existing agreement with a logistics services provider, ONDC allows such a buyer app/seller app to procure logistics services through ONDC, from a logistic service provider (LSP).
The LSPs are seller apps whose sellers sell ‘logistics services’. The LSP could be a marketplace seller node that has logistics sellers (such as Dunzo), or it could itself be the logistics seller (for example, Delhivery).
Payment and settlement
In the existing marketplace-driven e-commerce model, the payment is typically collected by the marketplace and settled with the merchants under certain regulations which have been notified by the Reserve Bank of India. As one may have noticed, in the case of ONDC, more players are involved and the buyer does not have a direct relationship with the seller app. Hence, the obligation for facilitating the payment and its settlement is spread across multiple players.
In the case of ONDC, more players are involved and the buyer does not have a direct relationship with the seller app. Hence, obligation for facilitating the payment and its settlement is spread across multiple players.
The ‘collector network participant’ in this scenario can be either the buyer app or the seller app. In the case of cash-on-delivery payment, the collector network participant is the LSP. The ‘recipient network participants’ will be the other players, that is, in case the buyer is the collector network participant, then the seller app or the LSP will be the recipient network participant.
In order to ensure timely and smooth settlement between the collector network participant and the other recipient network participant, ONDC has defined a settlement flow which requires two types of entities: ‘reconciliation service providers’ (RSP) and ‘settlement agencies’. The seller app/buyer app/LSP may perform these roles themselves or avail the services of specialised service providers (such as payment aggregators/gateways).
When a transaction is complete, that is, the order is confirmed and the customer has completed the payment, the RSP will receive the settlement terms and amounts from the transactional-level contract signed between the concerned network participants (that is, the buyer app/seller app). One network participant out of those will be the collector network participant, and the rest will be receivers network participants.
On the basis of the settlement terms and amounts received from the collector network participant, the RSP will prepare a settlement advice which it will forward to the collector network participant’s appointed settlement agency. The settlement agency will initiate settlement to the recipient network participant through the recipient network participant’s bank, as per the settlement advice received from the RSP.
Apart from the above, the refund and return process will work in a similar manner, but in reverse. Further, ONDC has also set out a framework for grievance redressal which is also interesting, as it includes one more kind of network participant, that is, online dispute resolution (ODR) service providers, where third parties can list their services to provide dispute resolution services in case of consumer disputes over the ONDC protocol.
What are the legal considerations for businesses?
It is critical for ONDC’s decentralised ecosystem (and the consequent absence of a central facilitator/marketplace) to instil trust not only among customers but also participants, that is, the buyers and sellers. Accordingly, ONDC has developed the following documents to ensure enforceability of rights and obligations:
(a) A ‘network participant agreement’, that governs the relationship of ONDC and the network participants (that is, the buyer apps/seller apps).
(b) An ONDC network policy, which is part of the network participant agreement. This document details the operational aspects for a participant to actually transact on ONDC.
(c) A transaction-level contract, that is, a digital contract executed through ONDC between the buyer app and seller app. ONDC is not a party to that transaction. Given the ONDC eco-system, the buyer app and seller app have no pre-existing legal relationship. A legal relationship is created between them via the transaction-level contract, to facilitate the transaction between a buyer and seller.
What is the value of ONDC?
The ‘e’ in e-commerce, for us, stands for ‘empowered’. The growth of e-commerce in India empowers consumers and businesses alike. While any disruptive change begets resistance, ONDC is a win–win game for everyone and contrary to the belief of some, is also a win for the marketplaces.
ONDC has developed documents to ensure enforceability of rights and obligations in order to instil trust not only among customers but also participants, that is, the buyers and sellers.
Marketplaces stand nothing to lose; the amount of revenue they may lose because of the decrease in listing fee as sellers do not need to list with them for being visible among the search results, would be made up by the increase in volume of orders being placed through the ONDC platform. Similar to UPI, which has benefitted all banks, ONDC is set to benefit all stakeholders. Renowned market players such as Razorpay, PhonePe, BigBasket and Meesho have already jumped on the bandwagon, seeing the potential of the ONDC framework.
The mysteriously beautiful mind and spirit of Lennon comes to our rescue to articulate what ONDC could do for the people and the countless small businesses of India. It could give back the ‘power to the people’, and truly democratise e-commerce.
“Singing power to the people
Power to the people
Power to the people
Power to the people, right on
Now, now, now, now!”
