Why are banks attracted to ONDC 

What is ONDC? 

Open Network for Digital Commerce (ONDC) is a not-for-profit entity set up by the government’s Department for Promotion of Industry and Internal Trade. It’s a digital mandi or marketplace aimed at connecting buyers, retailers, technology providers, financiers and others involved in commerce. As much as 60 per cent of ecommerce is divided between Amazon and Walmart-promoted Flipkart. ONDC targets breaking this duopoly of global players; it is expected to democratise trade by bringing rural and semi-urban market players into the formal fold of online trade. 

When will it be launched? 

In April, a pilot was launched in five cities — New Delhi, Bengaluru, Bhopal, Shillong and Coimbatore. But a full-fledged launch is likely to take more time. Operational issues related to improving competitive pricing, free movement of sellers between platforms, and improved portability of brand value are being addressed, without which, experts believe, ONDC’s effectiveness and ability to attract buyers and sellers may be muted. 

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Why are banks interested in ONDC? 

Ecommerce accounts for nearly 50 per cent of digital payments, whether through Net banking, cards, Unified Payments Interface (UPI) or wallets. With a new platform that can go beyond the reach of Amazon and Flipkart, ONDC would give banks the opportunity to tap these markets even if they don’t have a branch presence or relationship with customers there. ‘Bharat’ markets or cities below the tier-2 category have become the focus of banks, whether private or public, and ONDC will help penetrate this space. It would also present opportunities beyond payments. The digital trail of sellers, even if unorganised or without credit score, would open up business scope for banks, including working capital and overdraft facility, saving bank or current accounts, and term loans. Likewise, buyers otherwise reluctant to transact online for want of money, can be formalised to credit. ONDC can open up an entirely new customer segment for banks, which, on their own, may struggleto assess their creditworthiness or approach to business. To that extent, ONDC can democratise financialisation in Bharat banking. 

Why are banks picking up stakes in ONDC? 

State Bank of India, Bank of Baroda, Punjab National Bank, Kotak Mahindra Bank, Axis Bank, HDFC Bank, IDFC First Bank, and ICICI Bank have picked up 6.35 per cent stake each in the platform. UCO Bank has a 3.17 per cent holding, while SIDBI and NABARD have lapped up 6.35 per cent each. When the National Payments Corporation of India (NPCI) was set up in 2007, it was largely supported by banks for capital. For banks, playing an investor’s role helps them in modelling the business in a practical manner. It also gives them access to management and, to some extent, a say in how to approach the business. 

Can ONDC be the next UPI? 

While this is the belief, becoming the next UPI would depend on ONDC’s acceptance among the masses and whether it can live the test of market efficiencies. This may take 2–3 years. One of the problems that, some believe, might be addressed through ONDC is the undue concentration of big tech — PhonePe (owned by Walmart) and Google Pay (GPay) — in the payments space.

Despite the NPCI’s diktat of capping UPI payment processing by an entity at 30 per cent, the two together account for 80 per cent of payments processed.  In short, ecommerce and payments are dominated by global big techs and this needs to change. With ecommerce getting diversified and broad-based, it is believed that payments should follow suit. However, PhonePe and GPay remain the most popular tools and have earned users’ trust. So, how much ONDC can disrupt the big techs needs to be seen. 

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