“ONDC” is to “digital commerce” what “www” is to “Internet”

In this issue, we unbundle the Open Network for Digital Commerce in India and see exactly what is the “journey of an order in the network”, the “advantages of the network” and the “use cases” and what could be the shortcomings of the network.

If you want to know the general need for ONDC and the basic user journey follow here :

Open Network for Digital Commerce introduces an open network for all the players who can sell or enable selling in the e-commerce setup: a shopping platform, seller, logistic partners and technology service providers. No single entity controls the end-to-end activities in the buyers’ purchase journey as opposed to a platform-centric model.

Difference between an Open Network and Platform-Centric Model

Now, the 3 pillars that ONDC stand on are “interoperability”, “unbundled” and “transparency”. But how does ONDC ensure these? Let us figure it out with a simple diagram.

• Buyer-side apps (like Paytm) and Seller-side apps (like Magicpin) are listed on the network to provide buyers and sellers access to the network (and they interact with each other through gateways). This helps in the discoverability of products and services
• Third-party logistics providers (like Shiprocket) and Financial service providers are connected to the network to provide delivery services, these logistic partners usually would onboard themselves on the seller side apps
• E-commerce technology providers (like search engines, payment gateways (like Razorpay), and image recognition) are integrated into the network to facilitate features like query search and product mapping

When a buyer searches for an item on their app, the network will show results from all available sellers regardless of their listing platform, giving buyers multiple options to choose from. For example, a buyer could search for clothes, and see options from Amazon, Flipkart, Meesho, and Myntra in the same place (assuming all these services are connected to the ONDC network).

Buyers will also be shown the available delivery service providers and choose the cheapest option available (like Dunzo or Shiprocket). This will remove the dependency on expensive delivery options prevalent right now. The buyer can choose the desired seller and delivery provider (based on price, reviews) and make the final payment. The network then facilitates the money transfer and delivery fulfilment by coordinating with all parties involved.

So now a new question comes up. Who takes care of what in this process? Who takes care of sending information? Who takes care of searching for products on multiple platforms?

A step-by-step journey of order in ONDC

1. Imagine ONDC as a set of gears that swing into action when the consumer searches for a product on the buyer app such as Paytm.
2. The buyer app relays this search query to a gateway, which searches the ONDC registry.
3. The gateway would then identify the sellers relevant to the search and cast the query to all the registered apps.
4. The apps then fetch the status of the product’s availability from the sellers and relay this information back to the buyer app. The relayed information would be sorted and displayed on the buyer app with the highest relevancy.
5. While the buyer app can define the subset of products and services it wants to be known for (e.g., hyperlocal grocery and online food delivery services), it will need to make public its rules for listing and sorting search results. This is in keeping with network policies to ensure a truly democratic marketplace.
6. Now once the buyer has selected the product from a seller, the seller may fulfil the order on its own or use a logistics service discovered via the network. Depending on the option, the delivery time and cost are transparently shown, and the buyer makes an informed choice about the logistic partner, pays and confirms the order.
7. At the back end, a set of network services keeps ONDC running smoothly, from registries or applications that maintain the list of participants to scoring and badging services that uphold sustainable and transparent practices on the network.

Together, all these gears interlock for a tailored outcome based on the consumer’s preferences.

Once the order has been confirmed and relayed to all parties, a Transaction-level contract is created and digitally signed by the buyer app and seller app, as well as the seller app and Logistics Service Provider(LSP).

The seller app relays the information to LSP(like Shiprocket) and then the LSP takes care of picking up the product and the delivery to the customer.

Now that we have clarity of how the participants in the ONDC network interact with each other, let us see some use cases which have come up and could come up in the near future on the network.

McKinsey in their paper “Democratising Digital Commerce in India, April 2023” has already outlined some uses:

1. New possibilities: ONDC could empower farmers with a one-stop solution to boost crop production and increase incomes.

2. New possibilities: ONDC could transform India’s largely unorganised, wedding services ecosystem by bringing together various digitalised products and services.

3. New possibilities: ONDC could transform the transport ecosystem by stitching together public and private modes of transport for a seamless experience

4. Existing Application: Namayatri

5. Existing Application: Unified Energy Interface (UEI): Application of open network in electric vehicles

Across the digital commerce ecosystem, all the relevant participants such as customers, sellers, and service providers will benefit from an open network in the following ways:

• New and niche ways of seller discovery emerge for consumers
• Providers reach further
• Buyer and seller apps get efficient

Now that we know almost everything which is there to know about ONDC, we get some doubts also. ONDC is not a complete system yet and still needs a lot of input from the major players in the market such as Amazon and Flipkart who have yet to onboard themselves on the network. And there the doubts come:

1. Why would these platforms leverage the infrastructure of being a platform to an open network? What would be the advantage since these are companies that need to create profits to sustain themselves in the market?
2. Would ONDC still be successful if these big names decide not to join in? Naturally, the Indian market is big enough to cater for both platform-centric companies and open network models. But how will they work together?
3. How will ONDC handle returns or damage to products? With unbundling comes partial responsibility. Who would stand responsible for a return or damage to a product?
4. What if the buyer apps decide to show the results of a particular company on top? What should even be the criteria to show products for a search on the buyer apps?
5. Which party would handle the division of the funds to the respective participants? And would the other participants be okay with that? Could it lead to misuse of power?

All these and many such questions will come up as you dive deeper into the ONDC system. All I can say for now is ONDC is in its new stages and growing. New policies and network rules will keep coming up for all the network participants as new edge cases are found.

The system is developing and similar to UPI, it could have a massive inflow of users as it develops and moulds itself to fit the market. Till then we can wait and watch how the network unfurls.

If you want us to cover an element of ONDC or another product, feel free to share it in the comments and we will cover it.

My other Writings:

1. Disrupting the Platform-Centric Model — ONDC
2. The Account Aggregator(AA) Framework: What You Need to Know

Originally published at https://productsunboxed.substack.com.