Is ONDC really the UPI of e-commerce?

Source: The post is based on the article “Is ONDC really the UPI of e-commerce?” published in Mint on 29^th May 2023.

Syllabus: GS 3 – Indian Economy – Digital Economy

Relevance: concerns associated with Open Network for Digital Commerce (ONDC) platform.

News: The article explains the concerns associated with Open Network for Digital Commerce (ONDC).

What is ONDC?

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After the success of UPI, a hype is being created for ONDC that it will revolutionize e-commerce like UPI did with the payment system. However, the situation is different for both.

Why is it inappropriate to compare ONDC to UPI?

Before the launch of the UPI, all debit-based transactions were through a combination of cash exchange, online bank transfers, debit cards, etc. Even before UPI, people hardly used credit cards for payments.

Therefore, the launch of UPI made debit-based transactions easier by leveraging technology. UPI did not compete with any such big players in the market. It only made the existing payment system technology driven.

So, comparing ONDC with the UPI that it will democratize e-commerce by providing technology to the small players, which then will be able to compete with the big e-commerce companies is inappropriate.

What are the challenges with ONDC?

Making Profit: It is argued that ONDC will ensure competitiveness in the market by ending the monopoly of the big e-commerce companies. However, in reality even these big companies suffer in being a profitable.

For instance, it is viewed that platforms like Swiggy and Zomato are exploiting their duopoly power to create super-profits for themselves. However, for the fiscal year 2022, both reported losses.

Hence, even for the ONDC, it cannot be said that it will make huge profits by eliminating monopoly from the market.

Relying on Marketplace Model: One of the aims of ONDC is to create several new vertical marketplaces. However, large e-commerce companies like Amazon have shifted from the marketplace model to a ‘full-stack model’ or into a platform.

This is because the marketplace lacks standardization of pricing, payment terms, logistics, packaging, service levels, returns, resolution of customer complaints, etc.

Therefore, for ONDC, reversal to a marketplace model will bring back all the problems that were inherent in that model.

Ensuring a level playing field: It is argued that ONDC will ensure a level playing field by allowing small sellers to sell their products online.

However, concerns remain over the efficiency of the ONDC that how it will make the economic chain efficient while also offering a small player the opportunity to deliver their products to customers in their locality.

Moreover, some people still prefer shopping offline and most small players do not even target customers who care for the convenience of home delivery.

So, any solution that focuses on home delivery is unlikely to benefit smaller players because they can never beat the e-commerce companies on this.

Therefore, imitating the models of the bigger players is probably not the answer because what has worked for them may not work for others.

What can be the way ahead?

Any such new idea that aims to revolutionize requires fundamental change rather than following the same pattern. Else, similar problems will exist like other e-commerce companies.