Consumer and Internet
Unlocking next wave of Ecommerce growth with ONDC
18 May 2023
India has the third-largest online shopper base of 210 million, only behind China and the USA. As per Praxis analysis, the Indian B2C e-commerce market is estimated to be worth US$ 70 billion as of 2022 and is expected to grow to US$ 214 billion by 2027, growing at an impressive CAGR of 25%.  On the other hand, the B2B e-commerce market in India is the smaller portion contributing to 14% of the total e-commerce market in India. The B2B e-commerce market is estimated to be worth US$ 10 billion and is estimated to grow to c. US$ 95 billion by 2030 growing at an impressive CAGR of 33%.
Despite the large market size, India’s current e-commerce penetration is a mere 8% and is expected to nearly double to 15% by 2027 at the current growth. Open Network for Digital Commerce (ONDC), a government-backed digital network, plans to accelerate e-commerce penetration to 25% of all consumer purchases by 2025, much like the UPI success story.
ONDC will facilitate small-time and large merchants across India to access customers and compete with the behemoths Amazon and Flipkart which currently account for more than 60% of the market. The objective is to create interoperable digital commerce, like the UPI. “Nowhere else in the world do open networks exist. It’s all proprietary and closed systems,” said T. Koshy, the chief executive of ONDC. ONDC hopes to start with retail commerce but eventually extend to food delivery, travel, hotel booking, and travel, among others. The platform aspires to unravel the e-commerce opportunity for micro, small, and medium businesses, as well as small traders. “ONDC is not about creating an alternative but expanding the current e-commerce market,” says Nandan Nilekani, a member of the ONDC advisory council. 
ONDC today
ONDC network is live in 183 cities with 18,000+ merchants in alpha and beta testing across product categories of fashion, BPC, F&B, groceries, home décor, etc. The network has reportedly facilitated 22,000+ transactions so far. While, retail accounts for 73%, mobility makes up the remaining 27% of transactions.
Leading merchants and institutions have taken optimistically to ONDC. India’s largest bank, State Bank of India, picked up a 7.84% stake for INR 10 Cr in Mar 2022, following which 16 other banks have joined as shareholders. SBI Payments giant, PhonePe recently unveiled the first buyer-side shopping app, ‘Pincode’ built on top of the ONDC network. Pincode is onboarding seller apps, not actual stores. The seller pays a commission to the seller platform such as Amazon, Dunzo, etc. and a part of the commission is earned by Pincode.
What would it take for ONDC to succeed?
There are three broad pillars for the success of ONDC. First, the ease of making payments is critical in India as we are a “transaction-led economy”. In a market where e-commerce scams and fraud are not uncommon, ONDC must prioritize security and transparency.
Secondly, ONDC needs to ensure the platform is user-friendly, accessible, and affordable for everyone. This means creating a simple and intuitive interface, providing vernacular options, and supporting a wide range of payment methods.
Lastly, ONDC must work closely with local merchants and retailers to understand their specific needs and challenges, such as limited access to credit, lack of resources for marketing and advertising, and difficulty in adapting to rapidly changing market trends and creating solutions for them. By working closely with local businesses, complying with regulatory frameworks, and prioritizing security and transparency, ONDC can establish itself as a trusted and credible platform for digital commerce in India.
How can B2B companies leverage ONDC?
India’s B2B e-commerce is expected to grow from c. US$ 10 billion to US$ 95 billion by 2030 and is one of the fastest growing in the world on account of expedited development of supporting infrastructure, government-backed e-marketplaces, and easier access to credit. Analysts at ICICI mentioned, “Digital penetration of the B2B space is expected to increase to 2.3% in FY25 from 1.2% in FY23”.
B2B companies could leverage and benefit from ONDC in multiple ways. Seller-side platforms can focus singularly on smooth onboarding processes, incentives for referral & offer lucrative commission rates for the sellers, producers, and manufacturers, while buyer-side platforms can focus on building a wide base of buyers across the board such as manufacturers and retailers through better user/customer experience, discounting, and referral programs. By building a sizeable mass of merchants on either side, B2B companies can cross-sell and upsell products and services.
Various logistics service providers can hop onto the network to provide product-specific as well as product-agnostic last-mile delivery systems according to the needs of the seller much like what Shadowfax, Shiprocket, and other logistics startups do. Logistic partners can additionally help local sellers, especially in agriculture and agro products sell abroad through their logistics capabilities.  Players like Dunzo for Business, Delhivery,, and Ekart have already partnered with ONDC to facilitate such services to small-time merchants to reach PAN India and international markets.
By enabling interoperability among all participants, ONDC provides sellers with wide discoverability, thereby benefiting the small producers & MSMEs who are constrained to their geography. eSamudaay is a network of software nodes connected to ONDC which allows SMEs to easily establish their presence on ONDC and gain access to buyers PAN India. A regional agro products manufacturer of groundnut-based products in remote parts of Karnataka would now be able to cater to demands for their products in student popular destinations in Canada, Germany, and the USA.
ONDC offers a single payment system that can be used for all transactions, making payment processing convenient and efficient. This can help B2B businesses reduce their transaction costs and improve cash flow. For example, Mystore is the first ONDC-connected marketplace that additionally layers features for tax compliance, invoicing, and billing simpler for sellers.
ONDC offers a transparent and secure platform for e-commerce transactions which can help B2B companies build trust with their customers as well as suppliers. This can also help them identify and address any issues more quickly. Spice Money, India’s leading rural fintech claimed to be the only rural fintech player to be implemented on ONDC.
ONDC allows B2B companies to collaborate more easily with their upstream and downstream partners i.e., suppliers and customers reducing inefficiencies in the supply chain. ONDC uses Technology Service Providers (TSPs) such as Zoho as the technology backbone to provide services like inventory management, digitizing catalogs, network analytics, vertical integration of transaction accounting, taxation, CRM, etc. “As a technology service provider (TSP) on the ONDC platform, Zoho enables sellers to become digital-ready by leveraging Zoho Commerce”, says Akshaya Dhandapani from Global Business Development at Zoho Corp. Such TSPs lead to lower inventory holding costs and inexpensive first-mile and last-mile logistics for small merchants and manufacturers.
In conclusion, while ONDC holds promise to transform the future of Indian e-commerce, the success is dependent on the stakeholders. It is imperative that besides a robust tech platform, a system that incentivizes both the sellers and buyers would succeed, much like the UPI story

Author: Madhur Singhal Co-author-Nikhil Inamdar

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