How’s ONDC solving small sellers’ discoverability and commission concerns on e-commerce

Subathraa Vasan, a former college professor who launched a millet-based food brand to pursue her long-term dream of becoming an entrepreneur, couldn’t tap into digital commerce as online marketplaces were demanding exorbitant commissions. Her venture, PVR Foods, remained offline since its launch in October 2016 until she came to know about Open Network for Digital Commerce (ONDC).

“When I went to the marketplaces, they wanted 40 per cent commission and I couldn’t work with them because I couldn’t give that sort of margins. They were asking me to increase the price and given them 40 per cent. I couldn’t go online because of the pricing. I was constantly asked by people, including my own family, as to why, despite being a professor of technology, am I not selling online. I was so stressed and was unable to explain it them. When ONDC came, I jumped on to it because here I will be able to sell products for the same price as I sell them on physical retail stores, I can still earn a profit for myself and my customers are happy,” she says.

Vasan is one of the early merchants signed up for a pilot on ONDC, an ambitious initiative to democratize digital or e-commerce in India. At present, about 60 per cent of India’s e-commerce market is controlled by two US-based platforms – Amazon and Walmart-owned Flipkart. ONDC is a private non-profit company, established by the Department for Promotion of Industry and Internal Trade (DPIIT) as a Section 8 company, like the National Payments Corporation of India (NPCI), which runs the UPI platform. The interoperable, open platform aims to bring about structural changes in the current platform[1]centric e-commerce model so that more ventures like Vasan’s PVR Foods can get a shot at e-commerce and grow. It also aims to change the trend of discount-led online buying.

To that end, ONDC’s community-led network has three basic components—buyer-side apps, seller-side apps, and logistics providers. Buyer-side apps are any applications that will interact with the consumers (on the demand side), and seller-side apps are applications that will interact with the merchants (on the supply side). Seller-side apps onboard merchants on their platforms and every merchant integrated with any of the seller-side apps is automatically discoverable on all the buyer-side apps on the network.

For now, Paytm is the only platform on board the buyer side, whereas Digiit, eSamudaay, GOFRUGAL, GrowthFalcons and SellerApp are the five e-commerce enablers that are live on the seller side. Logistics players Dunzo and LoadShare are also piloting on the platform, while Grab, Flipkart’s logistics arm eKart and Ship Rocket are in the final stages of integration. PhonePe, Kotak Mahindra Bank, Microsoft India and CSC Grameen eStore are also expected to join the network as buyer-side apps soon. About 16 seller-side apps are in the final stages of integration while pilots are currently underway across 50 cities.

As of now, food & beverages (F&B) and grocery are the two live domains being tested on the network. As companies with substantial user bases like telecom operators, banks and social media platforms sign up for ONDC, a consumer will no longer be dependent on a particular e-commerce platform. They can access the network with their bank, telecom or chat app, or any entity that is a buyer-side partner on ONDC. Whichever buyer[1]side app the consumer uses, they will have access to the entire list of sellers present on the network.

From the merchant’s perspective, the primary pain point that ONDC solves is discoverability on the e-commerce platforms. Search results are delivered by them based on the brands that give them more margins, or those that spend more money on advertising on the platform. Merchants who cannot do that have little visibility with the customers. But on ONDC, every registered merchant will be discoverable across buyer apps, irrespective of the seller-side app it has signed up with.
 
Moreover, the outrageous commissions that platforms levy on merchants exert tremendous pressure on their unit economics. And ONDC promises to ease that. According to partners in the network that BT spoke to, the network has set a 3 per cent cap on buyer-side commission (charged from seller-side apps) while seller-side commission (charged from the merchants) is about 10-15 per cent. Even as the seller-side commissions are significantly lower compared to the 25-40 per cent charged by platform-based marketplaces, ONDC has decided not to enforce a hard cap on commissions and let market forces determine it, says T. Koshy, CEO of ONDC.

On ONDC, merchants will have the freedom to negotiate better prices with logistics providers while on the e-commerce platforms, they have little control over the service-level agreements. “With ONDC, I can engage with many sellers. It helps me utilise my logistics network well. It also helps me to innovate based on the different kinds of merchants I am working with. On the cost part, I can bring in optimisations into my own network,” says Dalvir Suri, Co-founder of Dunzo and head of its B2B logistics arm, Dunzo for Business (D4B).