What is ONDC?
An open network for digital commerce refers to a digital ecosystem that allows different stakeholders such as merchants, consumers, payment service providers, and technology companies to interact with each other in an open and interoperable manner. This means that the network enables a seamless exchange of data and transactions between different parties, regardless of the platforms or technology they use.
In the context of India, the government has launched the Open Network for Digital Commerce (ONDC) initiative to create a common digital infrastructure that facilitates the growth of the digital commerce ecosystem in the country. The ONDC aims to provide a unified platform for different stakeholders to connect and transact with each other, which can help in reducing transaction costs and improving the efficiency of the digital commerce ecosystem.
Let me try to explain this in simpler terms :
Imagine you want to buy a product online, say a mobile phone, from a website or an app. You add the product to your cart, select a payment option, and complete the transaction. What happens behind the scenes is that the website or app communicates with a payment service provider (PSP) to process your payment. The PSP then interacts with your bank to deduct the payment and transfer it to the merchant’s bank account.
Now, let’s say that the website you used only accepts payments from a certain PSP. This can be a problem if you have an account with a different PSP or a different bank. You may have to switch to the specific PSP or bank accepted by the website to complete the transaction, which can be inconvenient and time-consuming.
An open network for digital commerce aims to solve this problem by creating a common platform where all PSPs, banks, and merchants can connect and transact with each other seamlessly. This means that you can use any PSP or bank account to pay for your purchase, and the transaction will be processed without any issues. In this scenario, you, as a customer, have the freedom to choose any payment option that suits you, and the merchant has the flexibility to accept payments from any PSP or bank.
This open network for digital commerce can help in reducing transaction costs, improve efficiency, and promote financial inclusion. It can also enable small merchants and entrepreneurs to participate in the digital economy by providing them with access to a larger customer base.
Let’s say there’s a startup that wants to sell its products online, but it’s just starting out and doesn’t have the resources to create its own e-commerce website or app. Instead, the startup decides to sell its products through an existing e-commerce platform, such as Amazon or Flipkart, which has a large customer base.
However, the platform may have its own rules and regulations regarding payment options and commission fees, which may be too high for the startup to afford. Additionally, the startup may not have access to the platform’s customer data, which could be used for targeted marketing and customer engagement.
In this scenario, an open network for digital commerce can benefit the startup in the following ways:
1) Choice of payment options: With an open network, the startup can choose from a variety of payment service providers and payment options that suit its needs and budget. This means that the startup can select the most cost-effective payment option and save on transaction costs.
2) Access to customer data: An open network can allow the startup to access customer data, such as purchase history and preferences, which can be used for targeted marketing and customer engagement. This can help the startup to build a loyal customer base and improve its sales.
3) Lower commission fees: An open network can offer lower commission fees compared to existing e-commerce platforms, which can help the startup to save on costs and improve its profitability.
The ONDC is built on the principles of open architecture, open standards, and open-source software, which means that it is accessible to all stakeholders and can be customized to meet their specific needs. The platform is expected to play a crucial role in driving financial inclusion, promoting entrepreneurship, and enhancing the overall digital economy in India.
Overall, it can provide startups with greater flexibility, access to a larger customer base, and cost-effective payment options, which can be crucial for their success in the digital economy.