Many believe that the new kid on the digital block, ONDC (Open Network for Digital Commerce) poses a challenge for the domestic e-commerce giants. There are apprehensions about the new platform and the repercussions of its entry into the business. From triggering price wars, intensifying competition in the market to taking over heavy-weights in all segments, ONDC has raised a lot of eyebrows.

However, the looming question remains- how soon or how much of a success can the government-backed ONDC become without the participation of the same enterprises whose hold over the e-commerce space it is threatening to uproot.

"The intent to challenge the duopoly of the existing players is correct, however, execution of the vision is critical to ONDC’s success," says Karan Taurani, senior vice president - research analyst, Elara Capital.

Touted as the 'UPI-twin' of e-commerce by backers of ONDC, some analysts and industry executives have raised doubts if the open system has the prowess to rival the efficiencies of a systematic e-commerce operation with a service interface that has multifarious moving parts – from order to delivering goods logistics, and from managing returns to consumer grievances.

In fact ONDC chief executive, T Koshy, asserts existing players – Zomato and Swiggy in food delivery, Uber and Ola in the ride-hailing segment, and Amazon and Flipkart in the e-market – are all working quite well. However, he also adds that there is room for ONDC to find its place in the market.

"We are talking about an inclusive expanding market; when the market increases, all players in it will also benefit," he tells Fortune India on the sidelines of Shiprocket’s SHIVIR 2023.

Roadblocks ahead

Since ONDC has a myriad of moving parts and components, it is facing several initial teething concerns. From being unable to build critical mass in any particular city to issues arising with the onboarding of Kirana stores, ONDC is not growing at the pace experts envisioned it to.

The biggest issue with ONDC is execution wherein orders are placed but there is a failure in executing delivery. Secondly, existing players have a mechanism in place to measure customer experience and grievance redressal system which ONDC currently lags in.

"From an economic standpoint, there is no compelling reason for a consumer to choose ONDC for now. They would rather choose good app-based user experience and tech capabilities," opines Taurani.

While ONDC has done well in a few select cities, he says that the reason for its success is the offering of free delivery as the customer in this segment is price sensitive. With delivery fees being incurred by ONDC, this does not seem like a viable move for ONDC to scale up or compete with the larger players in the medium to long term.

Currently, the platform is not suited for high-value items and only low AOV (average order value) items find traction on the platform. ONDC requires a transformational sweep, right from lead time, and customer experience, to technology – which can only be achieved over a period of time.

Nevertheless, the chief of the non-profit e-commerce platform shares some interesting numbers for ONDC in terms of growth. From 50 transactions a day in January, the network is witnessing 100,000 transactions a day at present and the number of merchants has also risen to 1,40,000 merchants from 800 merchants in January.

According to Saahil Goel, founder, Shiprocket, ONDC holds the potential to open up a whole value chain. "If a segment or part of the country is making a product and there is a way to directly consume from source, it is beneficial for the economy, the artisan as well as the buyer," he elaborates. He calls it a ubiquitous platform that enables inclusion and removes barriers – such as procuring sellers, logistical concerns, and payment holdups – that exist for the small merchants.

Evolving trends

While e-commerce in India has existed for many years, there has been a noticeable shift in how brands, sellers, consumers and institutions alike approach digital commerce.

Capitalising on this momentum, one good thing ONDC will do is keep take rates under control which the other platforms exploit under the guise of dynamic rates, says Taurani.

"While ONDC aims to enable and strengthen every player, what is going to go is the rent-seeking opportunities of monopolies," says Koshy.

Another boon of e-commerce owing to the massive domestic consumer expenditure and consumption market is that consumer spending in India is expected to exceed $4 trillion by 2030, growing at a CAGR (compound annual growth rate) of 10%, according to the E-commerce Trends report by Shiprocket in collaboration with ONDC.

Goel says India's digital economy is set to soar new heights with MSMEs (micro, small and medium enterprises) playing a very important role in the growth of the Atmanirbhar Bharat vision. Moreover, MSMEs will also play a significant part in determining the future of ONDC and planting it firmly as a contributing factor to the Indian economy, adds Goel.

The report further reveals that 57% of consumers chose UPI (unified payment interface) as the most preferred prepay option and the extensive consumer survey also inferred that nearly 80% of consumers prefer shopping at online marketplaces.

"With the emergence of UPI and ONDC, India is breaking away from the traditional approach to e-commerce, enabling businesses of all sizes and individuals from diverse backgrounds to partake in the growing digital economy," adds Koshy.

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