India is undergoing transformative changes with the adoption of radical innovations that replace traditional processes with digital solutions. Aadhaar for identity verification, UPI for mobile payments, FASTag for toll payments, and DigiLocker for digital documentation storage are key components of India’s unique and extensive digital infrastructure ecosystem, unparalleled by any other country.
Next, in continuation of this series of Digital India initiatives, is Open Network for Digital Commerce (ONDC) which was established on December 30, 2021. It is set to drive significant transformations in the realm of digital commerce. Within a span of 18 months, ONDC has successfully established itself in significant sectors including grocery, online food delivery, home décor, and mobility. It has conducted pilot projects in major cities such as Delhi, Bengaluru, Meerut, Bhopal, and Coimbatore. In short, it has the potential to revolutionize the digital marketplace and create an inclusive environment. Let us explore the underlying technical framework of ONDC and its benefits.
ONDC aims to establish a network and data policy framework in collaboration with the network participants to formulate the rules and a code of conduct covering various digital commerce related activities. These two policies would be regularly updated to align with the evolving network and made machine-readable and enforceable, thus enhancing automation, compliance, and transparency. It will address key areas such as implementation, registration, subscription, transaction, payment, data transmission, and communication.
The data policy of ONDC will adhere to the Information Technology Act 2000 and make efforts to comply with the forthcoming Personal Data Protection Bill. For instance, both users’ Personally Identifiable Information (PII) and important trade data of sellers will be safeguarded from unauthorized access, ensuring privacy and security. ONDC will safeguard the integrity and trust of data at every transaction. Its commitment to data security and credibility will be the cornerstone of digital commerce’s flourishing journey. Initially, ONDC would not be charging a network fee but may implement a tiered transaction processing fee of up to 3% in the future. Network participants should carefully assess their options when entering this space and focus on short-term use cases to participate and consider a long-term transformation agenda to drive innovation and achieve strategic goals.
The technology components of ONDC encompass various network elements like registry, gateway, buyer, and seller applications, as well as adapter interfaces. These building blocks form the foundation for creating a robust and interconnected network infrastructure.
Adaptor Interfaces: Central to ONDC’s technical framework are the Adaptor Interfaces. These open APIs, developed based on the Beckn protocol, facilitate seamless information exchange for executing transactions. Beckn APIs, a set of open network protocols developed by Beckon Foundation. These protocols facilitate communication over HTTP and support various transactions or use cases within ONDC, including search, payment selection, returns, refunds, and ratings. Beckon Foundation is actively creating an interoperable open protocol specification that can be freely used by all. With standardized and interoperable interfaces, ONDC enables smooth interaction and integration among diverse network participants.
Gateway: The Gateway application plays a pivotal role in the ONDC ecosystem. Its primary purpose is to enhance the discoverability of sellers by efficiently broadcasting buyer search requests to all seller applications. By considering location, availability, and customer preferences, the Gateway delivers personalized search results, optimizing the buyer’s experience. Gateway must ensure that all the sellers within the network are easily discoverable by broadcasting search requests from buyers to all sellers. ONDC will initially provide such a Gateway through its technology partners to initiate operations, but it is expected that multiple gateway providers will emerge, offering independent services as the network grows.
Open Registries: ONDC would maintain Open Registries as dedicated applications for maintaining participant lists and network policies. Open registries ensure effective governance and maintenance of the network. Open Registries serve as trustworthy references, boosting the credibility of the ONDC ecosystem.
Buyer and Seller Side Applications: The buyer-side application can be your normal phone app as well as voice assistants, chat-bots, etc., whereas the seller-side application can be any application that receives buyer’s requests and, in response, publishes the seller’s catalogue of goods and services and fulfils the buyer’s orders. Initially, to facilitate seamless transactions, ONDC would provide these dedicated Buyer and Seller Side Applications to interface with each other, allowing buyers to explore the products or services, smooth and enriched customer, or digital experience.
Benefits of the ONDC Technical Framework: The technical framework of ONDC brings numerous benefits to the digital commerce landscape:
Interoperability and Scale: ONDC promotes seamless integration among the network participants i.e., applications and platforms, eliminating barriers and fostering interoperability, by adopting standardized interfaces and open APIs. Network participants in this open network collaborate independent of a specific platform, allowing users to access the network through various buyer or seller applications for digital commerce. It could serve as a network of networks, unleashing countless possibilities and driving exponential growth in digital commerce. It has the potential to become a highly inclusive network, connecting millions of self-employed workers and significantly increasing the presence of MSMEs.
Enhanced Discoverability: ONDC simplifies complex systems by breaking them down into granular activities or microservices. For instance, different entities can handle seller-side, logistics, payments, and buyer-side activities in an e-commerce transaction. The Gateway application optimizes the discoverability of sellers, presenting buyers with a wide range of options and personalized search results.
Data, Transparency and Trust: ONDC would ensure a trust-based environment and seamless experience across the customer journey, including search and discovery, order placement and fulfilment, payments, and reconciliation, and returns and customer grievances. Open Registries and adherence to network policies would promote transparency, trust, and integrity within the ONDC digital commerce ecosystem. Both the buyers and sellers involved in a transaction would have access to and control over the data involved, always ensuring transparency and accountability at both the ends of the process. Once the supply chain goes digital, there would be increased transparency in pricing for all stakeholders, including shippers, fleet owners, and operators in both rural and urban areas of India.
While ONDC can improve price transparency, buyers should still evaluate service providers based on their performance and scale of operation. To ensure informed decisions, ONDC can collaborate with third-party providers to establish a reputation economy through unbiased and accurate ratings.
Moreover, ONDC will serve as a mediator for resolving disputes between participants by implementing equitable and transparent measures. It aims to establish effective mechanisms inspired by the Online Dispute Resolution (ODR) plan by NITI Aayog and guidelines provided by the Reserve Bank of India (RBI) for the financial sector.
Improved User Experience: ONDC encourages specialization, empowering each network participant to capitalize on their strengths, foster innovation, and showcase their distinctiveness, by adopting an approach that involves unbundling and micro services. ONDC would act as a bridge, and help local neighborhood markets, to serve the needs of their customers in a most convenient and customized (hyper local personalization) way. By leveraging customer data, these service providers or network participants could expand their online operations and create personalized experiences for both B2B and B2C commerce. This incentivizes sellers to establish financially viable direct-to-consumer (D2C) brands.
Buyer and Seller Side Applications could be designed to offer intuitive interfaces, simplifying transactions, and enhancing user experience. It also facilitates inclusion of sellers, regardless of their scale or digital expertise, in an open network, eliminating the requirement to develop their own ecosystem and reduces expenses associated with customer acquisition. For instance, when buyers make online purchases, they would be presented with financing options during checkout, accompanied by clear explanations of benefits and terms. Additionally, personalized offers for credit and insurance products, tailored to their buyer profile, would provide them with a range of choices from various lenders, rates, and discounts. The user interface would be attractive, and customer service would be of high quality.
Conclusion
The technical framework of ONDC is instrumental in transforming digital commerce by enabling seamless transactions, promoting interoperability, and enhancing user experiences. In a decentralized ecosystem where various players contribute to different aspects of the value chain, challenges arise in the customer journey. ONDC, in collaboration with technology service providers, aims to tackle these issues through network policies, improved APIs, and innovative third-party tools and solutions. As it continues to evolve, its potential to revolutionize the digital commerce domain becomes increasingly evident. By empowering stakeholders and fostering an inclusive ecosystem, it paves the way for a new era of digital commerce.
