The Open Network for Digital Commerce (ONDC) was brought together by the government to facilitate commerce across segments including groceries, mobility, food and retail delivery, fashion and more. Most recently, the platform forayed into international B2B exports with Proxtera, and has had ride-hailing app Ola join as a food delivery partner.
T Koshy, CEO and managing director of ONDC told The Core that the platform, launched in its pilot version last year, was inspired by the digital public infrastructure in other sectors in the country, like UPI.
The way ONDC works is markedly different from other e-commerce platforms. “All of us had been tuned to think that the only way to run e-commerce is to have a completely integrated platform which is driven by a proprietary protocol where the buyers and sellers come together and interact with each other using this exclusive protocol,” Koshy said. “But that is not how the internet started,” he added, calling the platform the “HTTP” of e-commerce.
ONDC allows sellers or services to make their product visible in this open network which will enable them to be discovered by buyers and fulfil orders. “So they will all be visible and they do not need to be made part of multiple platforms like today,” Koshy explained.
Koshy said the platform aims to hit over 200,000 transactions a day by the end of this year. “For the next one year we will see an accelerated growth… and probably in a year's time, you'll see the exponential growth happening,” he said. The platform aims to curb digital monopolies, and support small, medium and micro businesses and traders. “Interestingly, the brand owners are suddenly realising the freedom. No buying application has an exclusive right to any seller. And that is actually giving a lot of ideas to the sellers that they can start promoting their products digitally the way they want,” said Koshy.
For The Core Report Weekend Edition, Koshy spoke to The Core’s Govindraj Ethiraj about how ONDC is changing the face of e-commerce in India, the challenges it faces, and how it plans to grow.
Here are edited excerpts from the interview:
Before we come to ONDC, tell me a little bit about yourself. You have been working on nationally sensitive, important projects including the National Securities Depository Limited earlier (NSDL), the UIDAI – all involving usually very large databases of people. Tell us about how you transitioned from there to ONDC and what is ONDC about?
I was part of the startup team of NSDL, which was really trying to change the capital market. And after that in NSDL and then subsequently as a senior partner in Ernst & Young, I got an opportunity to work exclusively in population scale problems and its digital solutions.
So I ended up working on DEMAT, I worked on UIDAI, I worked on GST, I worked on Tax Information Network, quite a lot of them. And lastly, CoWIN. And since I was continuously involved in all of them, I got a chance to be a part of the whole community which is developing the open source solutions, what we call the digital public infrastructure in all these cases.
One of the initiatives of the Beckn Foundation was to develop an open source transaction enablement protocol and where I was involved as well. That is when the pandemic hit and the Ministry of Commerce decided to find a digital solution to improve access for the small merchants and the consumers. Initially there was something of developing some platform and then in the wisdom of the Ministry of Commerce-DPIT, under the guidance of the Minister Piyush Goyal, they said that you should not try to look at some very temporary super app kind of thing, which is just pandemic special and it will not have a meaning. We should take the same line of the digital public infrastructure journey that India as a country had been doing in the ID and financial transaction, et cetera, and try to find something equivalent to that that could transform commerce.
If you look at commerce or business, it's got two parts. One is - the buyer gives money to the seller and places an order to the seller and the seller sort of concludes a transaction, makes a contract and finishes with it. So if you look at UPI, it is about the money side. So the thought process was why can't you do the same thing on the other side in terms of unbundling and interoperability. And that is when there was a team put together and asked me to get involved because of my whole association in population scale solutions. And the Ministry on its wisdom decided to set up a separate independent Section 8 company called Open Network Digital Commerce and asked me to sort of run it and take over as the first employee and the managing director.
That has been the journey that happened in… the company got registered in December 2021. While there was a lot of preparatory work that was happening in the previous one year with the Advisory Council, with people like Nandan Nilekani, R S Sharma,, Dilip Asba, and Anjali Bansal, with the ministry officials like Anil Agarwal, who was the Additional Secretary then, and so on and so forth. Sort of a variety of people who had been looking at these kinds of things. And I became part of the crew trying to shape the solution. And then finally the company got registered at the end of 2021. February I joined officially as the MD and that was in 2022. And now we are here.
Tell me about the ONDC structure. When we think of, for example, an e-commerce platform, we can visualise it. There is, let's say, a Flipkart or an Amazon. You can visualise that there is a company, this is the server, this is where the data is sitting, this is how transactions happen. How does the ONDC work?
That's a problem because all of us had been tuned to think that the only way to run e-commerce is to have a completely integrated platform which is driven by a proprietary protocol where the buyers and sellers come together and interact with each other using this exclusive protocol, which would mean they are bound to each other. But that is not how the internet started, if you remember how.
When Tim Lee developed HTTP, he did not create a close network. He just said that let information sharing happen on the top of this foundation. So let the innovation come on the top of this foundation. Let people generate the web page or blog or anything to disseminate their information and let the traffic be determined by the quality and relevance of what is being shared, not which browser is looking at it because every browser can see it.
Same thing happened in the next stage of the revolution, which was about messaging. There again, if you remember, there was a closed email group, I mean email facility providers asking some decent amount of money to send messages. Then came the idea of SMTP that said that let each of the independent platforms provide its own utilities for their users, but let them all talk to each other using this common open source protocol called SMTP. So that again, it is completely interoperable.
That is why if I have a Gmail address and you have a hotmail address, I can send you mail and vice versa.
Absolutely. ONDC is the HTTP of e-commerce. So what it means is that every seller of a product or service which is catalogue-able, why do I say catalogue-able? Because it catalogue-able means it is relevant to a broad cross section of potential buyers. They would make their product visible in this open network using ONDC protocol which will enable them to be discovered, an order to be placed, payment to be made, and order fulfilment is completely tracked.
So they will all be visible and they do not need to be made part of multiple platforms like today. For example, today, if I am on platform x, I am visible only to the buyers on platform x. If I am in platform y, I am visible only to the buyers in platform y. So, if I want to be visible in both platform buyers, you have to be technical, legal, procedural, business process, everything has to be separate integration, because you have walled gardens.
Now, you are saying that you just make yourself visible on this open network using open protocol ONDC protocol, either directly or through some aggregators who would do. You made yourself visible…and now there are different kinds of buying platforms whose job is to help their kind of buyers. So there are no more wall gardens as you see in each domain—consumer goods, you have two or three; food you have two or three; ride hailing, you have two or three. No, it can be completely different. And each of them who has a set of digital consumers can help their digital consumers buy what is relevant so long as they are there. And in my opinion, they will all be there soon.
The journey as it progressed has seen some interesting shifts. For example, you are seeing a lot of interest in mobility. You started seeding, or rather you seeded it in Kochi, then you went to Bengaluru, and that has been almost like a blowout app. Everyone is using it, or a lot of people are using it, at least. And it is gone in perhaps a slightly different direction than what you thought of. Is that correct?
No, No, that is not how it is. Beckn Protocol when it initially started, even before ONDC, it was attempted as a pilot in a small mobility network in Kochi. Incidentally, I was involved along with the whole Beckn team there. That actually gave the confidence that it works. Then we went about doing this ONDC, formalising it, and we said that everything has to become a part of it. So we said, now that we know mobility works, let there be some experiments happening. We will just make that part of the larger ONDC network. So they became part of the ONDC network.
But we said let us prove it in one of the two most difficult areas. We asked about grocery and food—when mobility was there because they already had some experience. And then the same entity who helped us in the pilot in Kochi also said okay, we will drive it in Bengaluru in mobility.
The manufacturers are there as well as the chains.
Anybody who has something to sell can come. And for example HUL came, and they realised that this can be a powerful medium to strengthen their traditional commerce. I mean I believe that soon people like FMCG companies, like them will now have experience and develop the comfort will empower the whole traditional commerce channel. So that's a way that's been sort of growing.
How do you define the addressable market for ONDC?
I look the other way around. If you look at digital commerce today while you and I and people like us are very active consumers, we are not India. The penetration is only less than 10% on the buyer side and the seller side it is a couple of percentages.
If you remember what happened to UPI, it was not that we went and took out all the digital transactions of the card companies and they still do the same kind of numbers more than what they did six years ago. But we expanded the market. So we expect this kind of expansion to happen in every segment. In fact, we started B2B less than a month ago and it does about a few hundred transactions a day. So what we do is we are expecting to expand the market and say that probably from 10% to 25% of transactions in a few years is a decent dream to work for.
And also on the other side, we expect a significant amount of participation coming from a variety of sellers. If you look at the actual product mix of digital commerce mostly it's a product mix that is for you and us with significantly electronics being a very very large component, a mobile phone being a large component in that itself. Whereas now we expect the different kinds of buying applications will trigger and stimulate demand coming from various segments.
What we are going to see is that we are going to empower the other merchants who are not just relevant for us, it is relevant to a different segment. And then there will be different buying applications triggering demand from there.
The question that follows obviously is fulfilment and that I am assuming is an area where you had more challenges than perhaps others. The small merchant who logs on or is there on the ONDC and sells to me, I have no way beyond a point of tracking that purchase or tracking that good or that box till it arrives, except by following up with that one particular merchant. And it'll be a different one for each time I buy with a different merchant.
Again, let's think about any platform, the way it works. It's not that they are the producers, they have tie up with all the sellers. And in fact, if you look at each of those platforms, they also have a buying interface and a selling interface. It's not that everything is manufactured. Same thing happens here too. For example, let's take the example, Paytm is your buyer. You went to order food from there. So the food request was broadcasted by Paytm to all the food joints in Delhi for example. And there was, let's say, a selling application, Magic Pen. They are the one who onboarded all the sellers. So they got the order and order confirmation came back to Paytm. Their loyalty is not to any seller. They were loyal to me. They need to know the status of my order. As far as I'm concerned, I dealt with Paytm.
And in the same fashion, even if I have a concern… you just give me my money back. It goes back and the buying application as a representative of the buyer will follow up with the selling application digitally to make sure that his buyer is happy
Everything is digitally traceable. So even if there is a dispute, they will try to resolve it. As of now we have no dispute yet but we know there could be one dispute sometime. So that is why we enabled an online dispute resolution framework. If at all it becomes a dispute, those ODR agencies which are already empaneled in many of the industries and doing large numbers of volume, they will be able to suck in every information the audit trail from each of the entities and then take a fact based judgement.
So far you've not really had any problem is what you're saying.
Of course there were grievances which got resolved but nothing which will say that the seller said I don't care and the buyer says that's not what I meant. That's what you call a dispute. But that hasn't happened
Tell me about the learnings that you have had from mobility as well as whichever segment you have seen relatively more participation…food or groceries or commerce.
To be very honest, it's too early. But I'll tell you something – one is that since our minds had been so framed or so conditioned with a platform like they are thinking… It takes some time for the buyer and the seller to figure it out. We are a few months old in terms of public exposure, so people still think, is this a super app? Is it a super platform? Where is the ONDC platform? I said go there. All of them are ONDC platforms.
And then again, two kinds of people. Some people are already used to buying, like you and me. Now we are a people of creatures of habit. So if you want to hail a cab, you will go to the regular one that you are using. You are talking about change, demand. So we need to bring those triggers. Interestingly, the brand owners are suddenly realising the freedom. No buying application has an exclusive right to any seller. And that is actually giving a lot of ideas to the sellers that they can start promoting their products digitally the way they want, including the incentive, including the advertisement, including the deep links, and so on and so forth.
You're saying otherwise they would not have had control.
The control is now back in the hands of the brand. To trigger in some platform the brand would earlier have to have a deal with the platform. Here, they don't need to; they can actually create a QR code at the bottom and tell any buyer you can use any of the ONDC buying platforms. See, this is not real. It will probably in the future. Use it to scan. When they scan, they could be Paytm, there could be PhonePe, OLA. Whatever it is, they will all enable this. The nearest Kirana shop will pop up and his total will deliver. So Unilever did not go and do a deal with all of them.
Similarly, this kind of power is giving a lot of confidence to even small entrepreneurs. And since they will take time, the entities who are supporting…for example SFAC, which are small farmers associations, they have all the FPOs under they realise they have a lot of unique products, which till now could not be sold and if they wanted to go to any of this big platform, it was too irrelevant for them. So these kinds of even outreach and other entities helping them with the outreach, other entities helping them to make their catalogue visible in this network. So we are seeing this kind of community engagement of diverse kinds of people from the ministries, from the philanthropic organisation, from the brand owners, all of them. So you are seeing a sort of reorientation of commerce as we know, e-commerce as we know.
As you look ahead Koshy, so your strength of course is scale. How are you looking at bringing in scale? What are your own or the ONDC’s challenges and tasks?
We are trying to get a variety of network participants to support the relevant buyers and relevant sellers. We already have about 60 odd entities on the seller side and buyer side, a few 10-15 of them and B2B just started. So one thing is to broaden this participation. In fact, the good thing is we have a few hundred or some of them in various stages of integration.
Similarly the merchant side. So we work with NPS to get the merchants on. Like I said, we have more than almost 130,000 taxi and auto drivers which we expect to double in a few months. For the next one year we will see an accelerated growth, not that exponential growth. And probably in a year's time, you'll see the exponential growth happening. So the kind of things that we are trying to push forward is: by the end of this year we want to do more than 200,000 transactions a day and maybe next year this time to add one more zero.
The way we look at it is we should not restrict our thinking because it is a new experiment. And it is not like I said, I am not a listed company and I am not trying to kick up the prices of my shareholders. I am trying to build a utility. So I should give confidence to all those participants that we are attempting for the moon. And that we will do everything that is possible, that needs to be done, to make it happen to this community as a whole. We are trying to build an ambitious target for each of our ecosystem partners to achieve something really dramatic. And I believe that one good thing is we have some very good examples that we saw. Whether it is in Aadhar or whether it is in UPI etc, it gives a lot of confidence that these guys are not just talking in the air, these guys come from standing on the shoulders of some equally successful attempts in our country.
Everything has to be funded somewhere. In case of UPI let us say, the banks are not charging for it and therefore are subsidising transactions. It could be argued that in most public utilities, the public itself is paying for it via taxpayer money. The ONDC is a similar experiment but is that how it is likely to remain or is something likely to change?
The way it is now, ONDC will eventually have some small charge. The thing is there is no central platform, the cost is very very small… transactions are high. As of now for another few months we will not charge anything and after that we will have some very very small charges. Then each of the buying platforms and selling platforms may have their own strategy.
You saw what Namma Yatri did – they were initially completely free and now they said they will charge some Rs 25 per day irrespective of the number. Because essentially they are only charging for a fair charge for the services they have rendered.
Even if you look at some of the new technologies that are shaping up, for example buying the application, actually their interest is only to be good to the buyers, and help the buyers and be truly the buyers agent and not the sellers agent.