The Department for Promotion of Industry and Internal Trade has introduced Open Network for Digital Commerce (ONDC) to revolutionise e-commerce in India. The ONDC is a UPI-type protocol to support small and medium local retailers. With digital transformation sweeping worldwide, local stores are going online through different channels or creating their own portals. However, there is no interoperability between these platforms and the UPI. “The open network for digital commerce is a market-led initiative aimed at enabling interoperability in digital commerce based on the principles of openness. It aims to enable unbundling, democratising and unlocking value for all parts of digital commerce,” said Dr Hitesh Bhatt, director at Retailers Association of India, at the ONDC Masterclass held in December 2021. 

Structured as a non-profit organisation, ONDC has received about Rs 150 crores in funding till now. It aims at promoting open networks developed on open-sourced methodology, using open specifications and open network protocols. The beneficiaries comprise small, medium and micro enterprises, including retail stores, hotels, restaurants, and last-mile delivery partners. ONDC is a first-of-its-kind initiative that aims to democratise digital commerce, moving it from a platform-centric model to an open network. Piyush Goyal, Union minister of commerce and industry, called it India’s next UPI moment.

Problems with UPI

National Payments Corporation of India developed the Unified Payment Interface to simplify mobile banking and promote digital payments in India. But, UPI has some key challenges. NCPI offers only the backend solution and poses usability challenges as the partner ecosystems had to build the front-end application depending on the use cases. 

Major players in payment, such as Paytm, PhonePe and GooglePay, use UPI to enable transactions. Every transaction on UPI is clocked twice- once by remitting banks and then by receiving banks. This architecture leads to a pile-up of credit reversal failures. As of 2020, digital transactions have touched record volumes, passing the 1 billion mark. Lastly, UPI also faces a few security issues. According to a media report, India sees about 80,000 UPI frauds every month. The report also quoted a senior government official saying that 50% of all financial services frauds are via UPI. 

ONDC is built on the foundations of UPI. But will it address UPI’s challenges? ONDC is an open protocol for the entire goods and services chain. This includes establishing public digital infrastructures like open registries and open network gateways to exchange information between providers and consumers. The strategy paper has called ONDC a ‘network-centric model’. “Solving problems at such a population scale necessitates a paradigm shift from an operator-driven monolithic platform-centric model to a facilitator-driven, interoperable decentralised network,” the paper said.

ONDC’s network centric model/ source: ONDC strategy paper

Open networks are not owned or controlled by a single entity or platform. Instead, it will connect buyers, suppliers, and logistics providers through open-source specifications and protocols. With ONDC, as long as the platforms are interoperable, buyers and sellers can transact no matter what platform/application they use. This will also ‘unbundle the supply chain’ and shift the power from the intermediaries.

ONDC’s network centric model/ source: ONDC strategy paper

The platform consists of the buyer and seller-side applications to let end-users and sellers transact with each other. The buyer-side application will be a phone app. The seller-side application will be any application that receives the buyer’s requests, publishes the seller’s catalogue of goods and services, and fulfils the buyer’s orders. It acts as a gateway to discovering all sellers in the network by multicasting the search request from buyer applications to all seller applications, based on location, availability, and other customer preferences. At the start, ONDC will offer a single gateway to kick-start the operations, but this can later be expanded to more gateways. The Adaptor interfaces, the open APIs developed on the open-source interoperable protocol by Beckn, will allow users to exchange information. 

In January, the ONDC also organised a hackathon with 64 teams that worked on creating innovative solutions to meet 11 key challenges such as digitisation of catalogues, Indic language support, conversational interface, intelligent text parsing, dynamic pricing, and inventory management. However, the paper doesn’t have enough information regarding privacy and security safeguards.