How will ONDC reshape the Indian startup ecosystem riding on the growth of MSMEs?

22 billion in 2018 to 200 billion dollars in 2026 – that’s what the projected growth of E-Commerce in India is!!

How fair it is thought that the growth is disproportionally monopolised by a few E-Com giants? Perhaps, tech is meant to democratise but it has rather monopolised the market. If we only talk about India’s online retail market – Amazon and Flipkart have captured 80% of the market share.

Every product that we buy from the E-Commerce sites comes at a cost of the product being sold at the Local stores we are surrounded with. You might think that well the local sellers can in fact register themselves on E-commerce websites and sell the product – then what’s the problem?

MSMEs face high tax compliance and crunched profit margins when listed on E-commerce platforms. Also, it is easy to get lost among numerous known brands. Deep discounting, giving preference to selected sellers and of course, other anti-competitive practices make these platforms biased.

Hence, the concept of ONDC was formalised aiming to provide a level playing field to all the big and small players in the e-commerce on 31 Dec 2021 as a private sector lead not-for-profit company.

What exactly is ONDC?

‘Open-source network’, ‘open protocols’, ‘similar to UPI’ are the terms thrown at us, when we read about ONDC.

To make it simple–

A buyer Ram is looking to buy a smartwatch.

Now - He directly goes to Amazon/Flipkart and buys it.

But through ONDC Network - He searches for the watch, the ONDC network facilitates the discoverability of all the sellers registered in the network based on the criteria of location, availability, etc.

Source: ONDC strategy paper

Boom!! Suddenly even the small sellers have visibility, access to more buyers and autonomy in terms of visibility, and lower cost of doing business in digital commerce. The hyperlocal delivery will in fact happen by virtue of hyperlocal retailers.

To further understand check out the link of the transaction demo through ONDC - https://www.youtube.com/watch?v=56lGuw8m_yU

Currently, it has been tested in the pilot mode, but once executed all the E-commerce will have to mandatorily move into the ONDC network which includes Amazon, Flipkart, Zomato, etc.

Imagine what it does to the Startup ecosystem?

Source: ONDC strategy paper - Potential market transformation opportunity due to ONDC in the next 5 years

The value chain of Ecommerce if broken leads us to the following insight:

• More and more new entrants would be entering the ecosystem of ONDC, considering 90% of India’s commerce is still done informally.

• Delivery startups like Dunzo, Swiggy Go, Urban clap, Zomato, Grofers, and Paytm Mall will be direct beneficiaries of this.

• Opportunities for Innovation in the space of Logistics and warehousing are definitely going to be multiplied.

• Players who are in other services like digital wallets or payment platforms will be extending to digital commerce without establishing Digital commerce platforms.

The system has its challenges as well in terms of data privacy, defining network rules, establishing compliance, etc., but one thing is for sure – ONDC will benefit startups and various MSMEs across different sectors by attracting unique business models.

Until next time!

Content Credits: Komal Kumari