Implementing ONDC – A Journey

 

Standing on the shoulders of giants…

I read somewhere that in the early nineties when India attempted computerisation of the banking sector which was one of the major early attempts at computerisation across a domain, there was very high resistance from the bank unions who were worried about job loss. The idea was then sold as a provision of the Advanced Ledger Posting Machine (ALPM) to reduce the drudgery of the staff. India has come a long way since then.

The launch of the National Stock Exchange (NSE) as one of the earliest fully computerised stock exchanges, as against the “ring-based trading” that was prevalent in India and across the world, was a bold attempt in computerisation of the capital market. Establishing of National Securities Depository Ltd (NSDL) for dematerialised holding and trading of shares helped India leapfrog from being the most backward, to one of the most modern settlement systems in less than five years.

UIDAI was India’s attempt to build a population-scale digital ID solution first time in the world using open-source technology.  This project aimed to provide each individual with a unique ID.  The factors that contributed to its runaway success were very clear and simple problem definition (one unique ID for every person) which limited the extent of data collection required to issue the ID and functionalities offered which were only ID issuance and authentication), ensuring that there is no vendor or technology lock-in for any component, with the help of opensource technology (even when the use of proprietary solutions was absolutely essential, as in the case of biometric deduplication and authentication, a plug and play architecture ensured this vendor neutrality), the solution that was linearly scalable by design based on open source technology stack helped in making Aadhaar highly cost competitive. UIDAI brought in private sector participation to establish national-level enrolment capacity, and crucially there was no cost to the citizen as the cost of enrolment was borne by the government. The payment to the enrolment agency by the government against successful enrolment helped in the enrolment agencies being outcome-focused and result-oriented. Government’s thrust to UID-based benefit distribution created a demand-pull leading to UID penetration of more than 95% of the population in a short time.

The UID project proved that a Digital Public Infrastructure can drive dramatic transformation in benefit distribution as well as in service delivery. The next big initiative in this direction was UPI for broadening the adoption of digital financial transactions.  The unbundling and interoperability of the building blocks of customer interface for payments and receipts using QR code while the funds being held and transacted by the banks helped to create a very cost-effective fintech ecosystem that could spread across the country, and helped adoption of this method by merchants and consumers across all segments of society. The Demonetization provided a significant demand surge, positioning India to account for over 40% of the global volume of financial transactions.

New Kid on the block

Building on the foundation of these successes, we have ventured onto a new initiative to solve a problem that is challenging both developed and developing countries equally. The problems of a few large tech platforms using proprietary technology hijacking the market in many domains like consumer goods, food distribution, ride-hailing, travel and tourism etc., which in turn leading to business practices that are not in the best interest of the business enterprises (especially small enterprises) and consumers.

The initiative was triggered by the COVID pandemic. DPIIT Ministry of Commerce and Industry) wanted to find a solution to the supply disruption of everyday needs impacting the consumers and small merchants. A Steering committee, established with participation from both the government and the private sector deliberated and decided that the solution should not be a stop-gap arrangement in times of pandemic; but a solution that will transform commerce to address the challenge of exclusion of small businesses and the limitation of choices to the common consumers. This forum was expanded to have eminent members like Nandan Nilekani,  R S Sharma, Adil Zainulbhai, Anjali Bansal, Dilip Asbe, Suresh Sethi, Kumar Rajagopalan, Pradeep Khandelwal and Arvind Gupta with Anil Agarwal, the then JS in DPIIT as the coordinator and now continue as the advisory council. Later, Anurag Jain joined this council with Sanjiv JS DPIIT coming in as the coordinator. ONDC being the latest initiative in the DPI world in India let us delve deeper into how the solution was shaped and how it is proceeding.

In every business transaction, there are two sides. One is the payment for goods or services by the buyer(s), and the other is for making the inventory visible in the digital market by the seller(s) and searching for, choosing of, and contacting for products/ services by the buyers.

UPI took care of the payment side. ONDC is now attempting to do the same magic in the products/ services side by democratising commerce through the un-bundling of building blocks of commerce and making them interoperable to create an Open Network instead of walled gardens of platforms

Challenges Galore

In the case of UIDAI, while the biometric deduplication and authentication for the population of India, was a technological challenge that had no existing solution, which was solved by the brilliant team of UIDAI,  the process requirement for onboarding is relatively straightforward and funded by the government with no cost to the person being enrolled.  In the case of UPI, we have only one SKU (i.e. the money) to be exchanged, and that too digitally. The user interface can be really simple to handle and harmonised for this single SKU. The entities providing end-user interfaces are only a handful and the money is handled by a well digitised and highly regulated banking sector.

When it comes to commerce involving products and services, the challenges are multi-fold. SKUs are in millions, belong to diverse categories of goods and services, ranging from street food to laptops, and from auto-hailing to credit and insurance.

These require different user interfaces for different products/services for different kinds of buyers, and complex business processes for order processing, inventory management, packaging, warehousing, logistics and grievance handling for sellers, which necessitates their own nuances of rendering of information and handling information flow. The sellers come from different domains some well-regulated, some partly regulated and some entirely non-regulated. No regulatory mandate to participate or no “demonetisation” to create business compulsion or no linked benefit delivery to encourage adoption,

One Step at a Time

So ONDC is taking a step-by-step approach. With the help of endorsement from the Government, particularly by the Commerce Minister and DPIIT, leading banks and financial institutions chipped in the necessary capital to establish a not-for-profit company with the necessary flexibility and agility to respond to the fast-changing  requirements of digital commerce; that with a global-first solution architecture. FIDE Foundation with Nandan Nilekani, Pramod Varma and Sujith Nair as founders gave the foundational protocols and continued guidance. A powerful Advisory Council and a Board with appropriate participation of government, investors and independent members provide strategic direction and ensured unblemished governance.

Being a network, there is no central platform to be established by ONDC. The network would succeed only if we can create a vibrant ecosystem. It is a classical chicken-and-egg dilemma. Unless there is wide participation of merchants and service providers, it is not exciting for the customers; and unless there is a wide customer base on the network, there is no incentive for the sellers to come aboard 

More importantly, this is an idea that has never been attempted anywhere in the world. To encourage adoption, we needed to demonstrate that such cascaded flows, stitching services provided by multiple entities, will in reality  work seamlessly with end-to-end security of data.

ONDC being a network there was no central system to be built and tested by ONDC for the potential users to check out. We had to have some entities coming forward to develop seller apps and onboard merchants, buyer apps and consumers to try out orders, and Gateway and Registry to link these.

With a few entities like Protean, PayTM, Loadshare, Gofrugal, DIGIIT, Growthfalcon and Sellerapp, who were willing to bet on this idea and develop a minimum viable product and convince a few sellers to onboard, ONDC team went about demonstrating that this is a Network that can deliver its promise. This was our alpha testing phase that was kicked off in five cities across the county within five months of the company's incorporation. While the ultimate goal of the network is to cover the entire gamut of catalogable products and services, ONDC commenced alpha testing with the challenging domains of Food and Grocery. 

Six months later, ONDC launched beta testing in Bangalore with Grocery, Food and Mobility and after streamlining the processes among the participants and merchants in the first couple of months, we started reaching out to the consumers in Bangalore to try out the network. lowly and steadily, we managed to have more merchants and service providers, and a few customers testing out the network with around 40 to 50 transactions a day.

While this proved that we can have transactions in an unbundled network, we have a long journey ahead to have a critical mass of merchants and consumers in the network to make it sustain, and grow and to achieve the original objective of democratisation of digital commerce.

Unite and Conquer

One of the key elements of our early strategy was to have a few anchor partners in the domains we launched, then gradually scale transactions and publicize on a regular basis our principles, our aspiration, our roadmap and our progress. We had support from the Minister, the ministry, government, industry, startup ecosystem, philanthropic agencies and developmental institutions endorsing us, and the press giving us visibility and encouragement for the baby steps forward. This challenged us and is helping to convert fence-sitters one by one.

15 months on, we have grown from 800 merchants and 1200 orders in a month to 400,000 merchants, 8 million orders in a month across 800 cities, with  month on months steady improvement in penetration, usage and all key performance parameters with respect to order fulfilment and delivery. Though we had started with grocery, food and mobility, we have gradually added many more domains such as electronics, fashion and apparel, health and wellness, beauty and personal care, home and kitchen, credit, insurance, agriculture input and output etc and many more like B2B procurement, home and urban services, entertainment ticketing, multi-modal transportation and the list goes on.

ONDC’s ultimate vision is that every catalogable product/ service will be on the network, with innovative buyer interfaces helping diverse user segments access and choose what is relevant for them.

The industry in general, except for a handful, understands and welcomes this idea of open network. But we need to crack the cold start problem. Therefore, we are approaching this with a dual strategy. We are working with the digitally mature entities familiar with e-commerce to get them onboard and reach across ecommerce-friendly consumers to get the pumps primed. But it is a long journey.

The well-established businesses that are currently operating in a platform-centric world are yet to fully appreciate the dramatic change possible in the distribution channels and supply chains with the freedom an open network offers to the brands and merchants. The corporate bureaucracy, busy with business as usual are slowly realizing the opportunities, and many are seriously evaluating the possibilities, including this in the top management agenda and making it a priority and not just a nice-to-have tick-in-a-box. It is heartening to see established players from the public sector and private sector like SIDBI, NABARD, SFAC, HUL, ITC, Google, Meta, Dominos, Tata, OLA, PayTM, MagicPin, Juspay,Reliance etc. taking definite steps by launching their presence, albeit in pilot scale in comparison with their potential.

In the meantime, we have multiple initiatives to support the mini & small enterprises and to help the unserved and underserved sections of enterprises, entrepreneurs, artisans, weavers etc, who are normally ignored or provided lip-service for PR purposes to become truly ready to embrace, adopt and benefit from the world of digital commerce.

This involves innovation, capacity-building and handholding in areas ranging from selecting and signing-up with a service provider of their choice, developing attractive catalogues, uploading these catalogues with inventories to the network, responding in time to orders, order fulfilment, packaging for delivery, obtaining logistics, responding to queries and so on, so that they are accepted by the extended consumer base the network can offer. 

Many government agencies are excited about the possibilities with the ONDC Network. Ministries like MSME, Agriculture, Textiles, Fisheries and Animal Husbandry from Central  and State Government are doing/developing/ considering projects that can scale nationally. They are also in the process of developing/ launching schemes for their ecosystem, to leverage the network through digitalisation.

Philanthropic agencies like BMGF, TERI. etc have also jumped into the fray to extend processes, technology, and toolsets, and more importantly help them to promote their products/services.

The addition of financial products and services like credit, insurance and investments can be a real gamechanger when it comes to the small business as it can be an avenue for accessing flow-based working capital credits, sachetized insurance and investment driving digital inclusion across the length and breadth of the country.

We are expecting to have participation of of BFSI sector starting with Financial  Products and then expanding their scope to help small and medium scale industry to leverage open network with a robust foundation enhancing digital financial inclusion.

Now that we are getting a decent pipeline of suppliers of diverse products and services, we need a big push to bring the consumer base. Not just existing users; but we need to expand the participation of both merchants and consumers in this world of opportunities digital India offers

Road Less Travelled

While we go through these steps for network and enabling ecosystem development, there are quite a lot of activities that the ONDC team with the active collaboration from the network participants are engaged in, to strengthen the network and to build trust on the network.

These include, but are not limited to:

(i)           continuous evolution of network polices to cover ever-expanding functionalities and domains;

(ii)          continuous evolution of protocol capturing the evolving network policies to help enforcement of processes;

(iii)       network-wide services such as scoring of merchants/service providers, which then becomes a digital asset they can benefit from, as well as acting as a deterrent to unscrupulous merchants, and a protection to the consumers;

(iv)     data lake of non-competitive,    non-business sensitive non-PII data, anonymised   and  aggregated as open data for all participants, to benefit without being an exploitative tool

(v)             SDKs, training and capacity-building material as common assets;

(vi)            developing an ecosystem of enablers and service providers to support small enterprises;

(vii)       enabling big-tech engineering skills on AI and language models to be available as standard offers that can be leveraged by small enterprises to complement their strengths in operation and customer care.

(viii)      enhancing systems and processes for smoother and faster grievance and dispute resolution

Tailpiece

Such roles help ONDC to help the network to continuously evolve as a truly democratic digital marketplace. This is a journey no person has ever made before; where India is playing a leadership role. Come and join hands in this global first quest

 " IF you want to be a pioneer you have to blaze your own trail"