Deep Dive: State of the ONDC Network

Have you tried ordering Diet Coke from Paytm?

If this sounds absurd to you like it did to me (before I placed an order last week from a store at 300m) you’re probably missing out on one of the biggest evolutions of Trade and E-commerce!

ONDC (i.e. Open Network Digital Commerce) is here to change how we perceive and participate in E-commerce forever.

Just as we saw a small example of unimaginable interoperability and non-linear distribution above, these are a few exceptional results of ONDC unbundling the conventional ways of trade today.

Here Paytm is acting as a buyer-side window (explained ahead) allowing consumers like you and me to discover various goods and services across categories (in this scenario Diet Coke) that are offered on the network(in this scenario my local vendor) from the seller-side window (explained ahead).

This is how ONDC is transforming the trade economy into a transaction economy creating greater hyperlocal market opportunities!

And not only Paytm, there are 70+ Network participants like PhonePe/Pincode, Meesho, Namma Yatri, Medpay, and many more!

Image from: ONDC

In this deep dive we’ll discover :

ONDC: A Building Block in the India Stack Vision(explained ahead).
How ONDC works and the core infrastructure.
Traditional E-commerce platforms and the need for ONDC.
The current state of ONDC and Future Roadmap.
Problems to build for and blockchain as a game-changer.
Solana Global Hackathon.

ONDC: A Building Block in the India Stack Vision

ONDC (Open Network for Digital Commerce) is a key initiative that fits into the broader vision of India Stack, the Indian government's strategy for a robust Digital Public Infrastructure (DPI).

What the Indian government did with Aadhaar was build a foundation layer for giving a Digital Identity to every citizen of the country leading to a one-step KYC for all kinds of authentication starting from the Creation of Demat accounts for which the growth story of Zerodha itself is an testament to the extent of DBT schemes (Direct Benefit Transfer) where beneficiaries receive various subsidies directly to their bank accounts.

Another global impact story that came as an outcome of the India Stack vision is UPI which is revolutionizing the Digital Payments system by decentralizing the digital payment transfer across platforms seamlessly.

Just to take a picture of the level at which UPI scaled we can look at the number of transactions processed in 2017 which is just one year after its launch was reportedly 100 million transactions worth INR 67 billion and cut to 2023 where UPI did 83.76 billion transactions totaling INR 139 trillion!

Image from: IAS GYAN

But why the hell are we discussing how great of a Public Digital Infrastructure Adhaar is or the number of transactions made by UPI?

Aren’t we here to discuss ONDC?

Well, to appreciate the taste of dark chocolate(to avoid other examples) you need substantial exposure to it! India stack and its vision is something you need to keep in mind while analyzing any product that is coming out of this initiative.

So now that you’re a level higher(intended) after taking into point India Stack and DPI,

Let’s get to the point!

ONDC is a not a Aggregator.

Not a Super Platform.

Neither is another MSME marketplace!

ONDC is an Open Network on top of which multiple unbundled buyers and sellers can make a variety of transactions resulting in an interoperable and non-linear distribution network.

This is somewhat contrary to the centralized traditional platforms that are a single place where from Retail to Logistics and Supply chain everything is single-handedly managed by a platform(Amazon, Flipkart, Zomato, etc).

But here at ONDC, the unbundling happens at all levels!

Just like we took the example of Paytm at the start, ONDC allows you to perform the task at which you’re most efficient.

For Paytm’s instance, it has figured out user onboarding and now it can take help from other players in the market to redirect its traffic toward other seller apps that provide the best products and services, logistics, and supply chain services to its users!

What’s this Buyer App, Seller App lingo you’re going on with?

Well, let’s try to understand that by understanding how exactly this Open Network for transactions works!

Image from: Kalaari Capital

How ONDC works and the core infrastructure.

Innately it's designed to connect buyers with sellers directly promoting more MSMEs to take up their E-commerce game!

Here rather than having a single marketplace model, the network is divided into the Buyer side aggregators(Buyer Apps) and Sellers side Aggregators(Seller Apps).

And both sides being a part of the same network every participant of the network is visible to each other creating interoperability & non-linear distribution.

Now if I want to place an order for a Diet Coke via ONDC, I can choose any Buyer App (e.g. Paytm) and through that App, I can compare the offerings of various vendors and select from multiple Seller Apps on the network.

For the seller's side if you’re a store that wants to sell Diet Coke on the network you can place your product at multiple Seller Apps or a custom one built by you and sell the Diet Coke directly to me!

Now if you understand the transaction cycle of E-commerce(even if you don’t nw, its simple)

there’s a complete supply chain and logistics model that comes in the process of delivering that Diet Coke to me!

But if the network actually unbundled all the transactions happening on it then who’s getting me that Diet Coke from the store?

Well on the Network every step is treated as a separate transaction, which means my delivery person is also a part of the Seller Aggregator App, and that is also a service provided to me in the process of delivering my Diet Coke!

So you can consider ONDC as a completely customizable E-commerce Network to cater to everything you need at your fingertips! (Soon at your voice command with Bhashini)

Image from: Moneycontrol

Are you saying that all these transactions are peer-to-peer?

Yes, you got this right!

Peer-to-peer.

But ONDC is built on something really magical and let’s take a look at that.

As these direct peer-to-peer transactions can become really complex & chaotic to manage, soo many varieties of transaction requests through one single network, and to tackle this the ONDC Network leverages the power of the Beckn Protocol!

Imagine the Beckn Protocol as a common language for e-commerce, similar to HTTP for the web.

So now that there’s a common language set for the transactions on the network, it becomes very seamless for every participant to make this work actually in a peer-to-peer model!

What about verification and authentication?

What if I get a duplicate/adulterated Diet Coke?

Whom should I hold responsible?

The Seller, Seller App, logistics services, or the Buyer App?

This can be an issue to be resolved in the peer-to-peer Open Network.

Well to solve this problem Beckn is empowered by a Blockchain CORD!

Blockchain is a distributed ledger technology that changes the equation of trust with math, hence making it fraudulent-proof!

Beckn not only utilizes blockchain for the verification, authentication, and onboarding of the participants but also has designed a rating and reviews tech solution based on the blockchain known as Confidex.

Confidex stores the credentials like reviews & ratings on a blockchain which makes it possible for the participants of the network to maintain their credibility and reputation across platforms!

This is how blockchain technology can potentially increase order volume on ONDC by creating Increased Trust and Transparency.

If you want to read more about the working of the tech on node level then I’ve linked an official document from Beckn towards the end.

Image from: Beckn

All this seems completely magical, isn’t it?

This is the very foundation of the Digital Public Infrastructure for the India Stack!

But why do we need this?

Traditional E-commerce platforms and the need for ONDC

Why can’t we go on with soo many pre-existing platforms like Amazon, Flipkart, Zomato, etc?

I get my Diet Coke in minutes if I order it from Zepto!

What’s the need for building this complex of a network?

The need for an ONDC roots from the vicious market models of large players like Amazon and Flipkart which make it extremely difficult for the small players like your Kirana shop uncle or that Stationery in your locality to compete in the realm of Digital Economy!

Even various traditional craftsmen are going out of business due to their inability to cope with digital commerce markets!

And for those who are making efforts to onboard this wave of digital revolution, it's becoming very hard for them to make profits out of their business online!

Here’s how the traditional model is harming the Hyperlocal Economy :

1) High platform fees: There are almost 20%-30% platform fees that these platforms charge to the merchants selling their products and services on their platforms.

This reduces the profit margins for the sellers making it unfavorable for them to sell online.

2) Product Replicating: With all the data and insights collected from the sale cycles on the platforms these giants set up SOPs to build custom products that are the most selling and offer intangible discounts which makes the best performers go out of business automatically.

E.g. Amazon choice products on Amazon.

3) No consumer insights: Hardly any data points or consumer behavior patterns are shared by these large platforms with the sellers making it very inefficient for them to maintain their inventory.

4) Market Models: There are two basic models in which the current E-commerce businesses operate. First is the Marketplace Model and the second is the Inventory Model.

Marketplace Models are where buyers and sellers make trade through a platform that charges them a platform fee.

Here not only the platform fees are charged but also the product placement fees kick in, where just like Walmart and Dmart sellers pay special charges for putting up their products on high visibility racks similarly on these platforms there’s a strategic product placements happening which makes it very difficult for the small scale sellers to maintain discoverability!

The Inventory model dominates the market by the tactics of deep discounting which only they can afford by mass procurement of goods and services.

5) Seller Reputation: The reputation and credibility are completely at the mercy of the platform and not even portable!

If my local vendor is selling Diet Coke on platform A and now decides to also start selling on platform B it's really an irritating task for him to build his reputation on platform B from zero.

6) No Multiple options: There is not a variety of sellers selling on the platform which makes it a very narrow marketplace for buyers to select from.

7) Manipulative selling: Many times if I want to order a Diet Coke the platform recommends a larger container of Coke or asks me to add on something for discounts which really not what I am willing to buy.

Image from: Decoding ONDC

All this makes it a really inefficient market model to work with.

But why do we really want these MSMEs to be part of the Digital Economy?

It's because MSMEs contribute 29% to our GDP and it provides close to 100 million job opportunities.

But the mere participation of these MSMEs in digital commerce is 5%!

Only 18%-20% of Indian consumers use these digital commerce platforms!

ONDC is trying to solve this problem of Digital Inclusion via its open network marketplace model where sellers and buyers have the liberty of doing peer-to-peer transactions.

Well, you might now conclude that ONDC is actually a very idealistic and utopian concept, but when it’s actually rolling out?

So just to highlight the actual implementations of ONDC let’s look at a few examples which are been working on the Network!

Are you serious, people are building things on top of this?

The current state of ONDC and future Roadmap.

Well, apart from the Diet Coke I ordered there are a bunch of things that are currently catered through ONDC!

There are many services that we might have used but have no idea of the tech behind them.

One example of such is the Namma Yatri App a Bengaluru-based initiative aiming to revolutionize public transportation in Indian cities.

It aims at creating peer-to-peer mobility solutions making it more profitable for ride hailers and feasible for the people taking rides.

Currently, Namma Yatri does 80k+ Avg daily trips, and drives 20% of the daily rides market in Bengaluru!

Another platform Petpooja helps restaurants leverage the ONDC network.

Onboarding onto ONDC
Connecting with multiple buyer apps (food delivery and discovery platforms)
Managing orders from various channels

PhonePe's Pincode: A Hyperlocal Shopping App on ONDC

PhonePe, a leading Indian digital payments platform, launched Pincode in April 2023. Pincode is a Buyer-side mobile application built on the Open Network for Digital Commerce (ONDC) framework.

Various Farmer Producer Organizations (FPOs) have joined the platform since April 2023. These FPOs are selling a variety of agricultural products, including rice, honey, millets, mushrooms, spices, and even value-added products.

There’s an official blog post on the success of FPOs using the platform which I’ve added below.

Out of 5.5 million transactions by December last year:

63% (~3.4 million) were in the mobility category
37% (~2 million) were in retail

Here Mobility refers to ride-hailing services like Namma Yatri and retail services are mostly Food and beverages, groceries, etc.

If we try to understand the current state of ONDC it's something like a matured MVP(Minimal Viable Product)

There are too many things happening already and too many things under pilot testing!

There’s a large amount of work going on for adding financial products and services to the offerings via ONDC and they’re trying to leverage some digital applications that are already part of our daily routine as Buyer Apps.

A concept called Information collateral is emerging which provides you with credit and insurance products on the basis of your digital footprint.

This is made possible via the technology of Account Aggregators(AA).

Image from: ONDC

And what about the experience of buyers and sellers?

Well, it's a mixed bag of candies and cucumber(weird)!

Talking from personal experience I have placed an order a couple of times now and I’ll say 4 out of 10 times the experience has been smooth but the rest 6 times it either took too long for the order to arrive or after the placement of the order the interface went bonkers.

But it's still understandable as the processes are still getting streamlined.

For the seller part, it has been according to the digital familiarity of the brand which means the brands that were a bit tech-savvy are easily getting onboarded within days, but for the ones that haven’t been that exposed to the digital commerce ecosystem it is taking months for just setting up a product directory on a Seller App.

(tried talking with the Diet Coke vendor and a few others in my locality)

A bunch of B2B folks are trying to assist the sellers in a smooth onboarding like Zoho, Adya, Plotchai, and many more.

You can try experiencing ONDC via platforms like Paytm, PhonePe, etc.

Also, there’s a specific ONDC Buyer-side platform called Mystore which you can use for accessing the ONDC Network.

Bro, I got it!

In a few days, I’ll be able to order/access almost every product and service via ONDC!

But what next?

Well, it's not an easy path paved ahead for ONDC to become a great global success.

There are a bunch of things that need to be worked and here we need contributions from individuals of various fields.

Problems Statements to build on :

Well if you are a builder at the core you’ll find tons of opportunities here!

The total addressable market for ONDC is projected to increase to 2.3% in FY25 from 1.2% in FY23, indicating significant growth potential in the e-commerce sector

In terms of investments, ONDC confirmed investments amounting to Rs. 2.55 billion from 20 government and private organizations, including HDFC, Kotak Mahindra, Axis Bank, SBI, and PNB

Additionally, leading startups like Boat, SleepyOwl, and ITC have registered as seller apps on the ONDC network, showcasing the platform's appeal to established and emerging businesses in the e-commerce space.

Here are a few problem statements to build on :

Dynamic inventory management solutions for seamless transactions between Buyer and Seller apps.
Building a Blockchain solution that allows participants to negotiate directly over the network.
A peer-to-peer ecosystem design for micro-entrepreneurs and agricultural producers.
Lending protocols providing credit to the participants according to their on-network reputation.
Creating protocols for seamless reverse logistics.

These were a few of the ideas I found fascinating to build upon.

But serious builders assemble here!

There’s something really cool happening at the Renaissance: The Global Solana Hackathon!

Build on ONDC using Solana

Yes, you read it right!

ONDC with partnership with Superteam India is running a track at the Solana Global Hackathon worth 10000 USDC!

Here are a few of the project ideas that you can build on :

A marketplace for coupons & offers with a funding mechanism for buyers and sellers.
A negotiation engine for enhanced logistics services through an order book system.
An ads exchange that tokenizes inventory making it freely tradeable across network apps.
Asset tokenization to enable recurring fractional purchases for precious metals like gold.
Skilling ecosystem to manage certificates and job listings across ONEST and ONDC NPs.
Seller blacklisting mechanism to identify repeat offenders across the network.
Your own idea for increasing volume on ONDC

The hack has already begun ( 4th March-8th April).

This is a great opportunity for anyone who has been getting dozens of ideas throughout this read and wants contribute towards a more decentralized digital commerce infrastructure!

The journey ahead for ONDC will be interesting to follow. Overcoming challenges, fostering user adoption, and ensuring a seamless experience will be crucial for its success. However, the potential for ONDC to create a more inclusive and democratic digital commerce ecosystem in India is undeniable.

The future of ONDC is being written today. By supporting this initiative and actively participating in the network, we can all contribute to building a more vibrant and equitable digital marketplace for India.

Thank you for staying with me till now and I believe you’re well equipped at least to start some lunch and dinner conversations around the current & future state of ONDC, Digital Public Infrastructure, and India Stack.

I am on my way to order another Diet Coke via the Mystore App ;)

Cheers

Prathmesh Vankore

Sources and more material to study :