ONDC's ultimate dream is to host every catalogable product or service, with its open-source protocol driving "innovation and specialisation" to transform commerce in India, CEO Thampy Koshy told Fortune India. Speaking about the ONDC's domain-specific architecture, Koshy says while in e-commerce, somebody starts in consumer goods, food, or mobility, and it's "domain-specific", ONDC aims to create a protocol like HTTP of commerce to let any domain exist in a common network like 'www' or World Wide Web. "There, it is for discovery; here, it is for commerce."

ONDC, a non-profit initiative by the government under the Department for Promotion of Industry and Internal Trade (DPIIT), aims to achieve in digital commerce what NPCI-led UPI did in financial transactions. In its latest whitepaper, ONDC highlighted how its new business model can transform India’s mobility sector, and boost drivers’ incomes by up to 30% to add ₹1.36 lakh per driver annually. Talking about mobility as a feature on the platform, Koshy says ONDC has demonstrated a zero-commission model through JustPay, which only charges a subscription fee, allowing small merchants like taxi drivers to receive full payments directly after rides. "This model enhances earnings and makes expansion to smaller towns feasible."

From 1,200 to 15 mn transactions a month

This year, Prime Minister Narendra Modi hailed ONDC as a tool that'll "revolutionise digital commerce", while Union Commerce Minister Piyush Goyal said it would open up new opportunities for small traders, MSMEs, and businesses. In the period since beta testing, how has ONDC done in the past more than two years? Koshy says from over a thousand transactions during the starting month in 2023 to 15 million transactions, with 7 lakh plus merchants or service providers, the ONDC has come a long way.

"I joined as the CEO in February of 2020. I was involved even before that, working on the whole idea, but formally joined as the first employee and the CEO, with some volunteers. During 2022, we were fine-tuning the protocol and beta testing. In 2022 and the beginning of 2023, we started with a few PIN codes in Bangalore, allowing the public to try it out in a couple of domains."

Koshy explains applying the "one-step-at-a-time-approach", the open network started with grocery and food, which is hyperlocal and a difficult segment, and later added mobility. "In January 2023, the entire month, we only did 1,200 transactions with a few hundred merchants. Last December, we did about 5 million transactions, and this December, we will do 15 million transactions with 7 lakh plus merchants or service providers already in the system."

He says while the network started with grocery and food in the consumer goods segment, categories like beauty, personal care, fashion, electronics, home décor, etc., have also been added over the months. "While the underlying protocol is the same, there are nuances for each domain."

ONDC added financial services last month, with basic credit and mutual funds, which will formally launch in January 2024, though trials have already been completed. "We will now move to enabling skills and jobs."

ONDC's domain-specific architecture

The ONDC network architecture creates an environment for buyers and sellers to transact in an interoperable ecosystem where operational control is decentralised, which is where it differentiates from big e-commerce players.

Koshy says ONDC has shown it's possible to build a network as opposed to a platform, with diverse domain participants, which enables digital consumers to buy complementary products. "For example, let’s say Ola is a ride-hailing application. Previously, they would have to partner directly with all food companies to offer food orders to their clients. Now, with the unbundled commerce model of ONDC, Ola only needs to provide a front-end interface for their riders to place an order for food or groceries, which is then fulfilled by other network participants. This model allows companies to broaden their offerings without directly integrating every service," says Koshi.

Similarly, he says, Bajaj Financial and Bajaj Markets are enabling customers to access a broader array of products, like TVs from Croma, with the option to get credit as well. "Even media companies are considering expanding beyond advertisements to include commerce as an option. Companies like Nazara are exploring to offer e-commerce within their platforms."

Integration of financial services priority

ONDC currently has around 22 buying-side applications conducting over 1,000 transactions daily. Of these, 12 applications process over 20,000 transactions each day. "Companies like Paytm and Ola have started offering complementary products, and we expect more sectors to join soon," says Koshi.

The ONDC CEO says the integration of financial services is a priority for the ONDC, with ongoing efforts in credit, insurance, and mutual funds. "Over 1 lakh credit applications have been generated, and we expect significant scale-up in mutual funds and other products. By fostering digital transaction flows, we aim to enable collateral-free credit, especially for small businesses. In the coming year, we anticipate a 3-5x increase in transactions, building on the current momentum of 15 million monthly transactions."

Significant progress but still too early

The ONDC CEO says the network's journey is still in its early stages. "For perspective, UPI, which was conceived in 2013 and launched in 2016, had only one SKU: money. In contrast, ONDC deals with millions of SKUs, most of which require physical delivery. Despite this, reaching 15 million transactions in two years across multiple domains is significant progress."

With UPI expanding to 7 countries, what's ONDC's plan for global foray? Koshy says internationally, people have started to take ONDC seriously. "While we are open to global adoption, our current focus is on scaling domestically. The protocol is open source and available on GitHub under a Creative Commons license."

Among challenges, Koshy says ONDC is working towards habit change among users and educating small merchants on e-commerce disciplines such as cataloguing, packaging, and digital demand generation. "Participation from rural areas is growing, with about 30-40% of transactions originating from customers in these regions. Curated applications tailored to specific markets, like rural commerce, will enhance adoption."

As part of its future strategy, the ONDC chief says the network will increase activity levels across consumer goods, mobility, financial products, logistics, travel, and even segments like spirituality. Koshy believes ONDC's journey has just begun, and that it has the potential to transform e-commerce. "We are working to remove transaction friction through digitisation and standard protocols. Like the World Wide Web’s evolution, ONDC’s open-source protocol will spur innovation and specialisation, and transform commerce."