ONDC Will Face Multiple Roadblocks Before Success: JM Financial

Govt Asks ONDC To Build Robust Grievance Redressal System Before Launch

SUMMARY

The financial services firm noted that the growth story of Flipkart and Amazon will remain intact, adding that the best case scenario for ONDC would be to include the two

According to the JM Financial report, ONDC fee has the potential to be 20-30% lower than the current platform fees

ONDC pilot phase was found to cost more than other incumbents in the field in the report

Financial services company JM Financial said in a recent report that the government’s Open Network for Digital Commerce (ONDC) will face multiple roadblocks before it becomes a success story within India’s ecommerce ecosystem.

“ONDC sounds like an interesting initiative but when it comes to execution, we anticipate multiple roadblocks that need to be overcome for it to become a success,” said JM Financial in its recent report, ‘ONDC: Disruption or Evolution?’.

Launched late last year, ONDC is the government’s move to democratise ecommerce, in a similar tune as UPI democratised fintech and payments ecosystem. During the initial days, it was universally believed that ONDC will end the duopoly of Flipkart and Amazon India, which control 60% of India’s ecommerce market between them.

However, the report noted that the growth story of these two companies will remain intact, adding that the best case scenario for ONDC would be to include the two, as the two can provide the network with a ready base of buyers and sellers.

According to the JM Financial report, the ONDC fee has the potential to be 20-30% lower than the current platform fees. That means that the commission charged by ONDC on a per-order basis would be lower than traditional marketplaces, including payment gateway charges.

However, the financial services firm also warned of a potential disruption in the market if the government decides to ditch the commission altogether. Since the network has drawn parallels with UPI, the report noted that UPI attracts a zero per cent merchant discount rate and hence, it is not financially viable for payment providers.

“While ONDC again does not plan to mandate the commissions charged, any high-handedness by the management can destabilise a market that seems to finally have evolved around charging consumers for convenience,” the report added.

Staying on the comparisons with UPI, the report added that ONDC will also ‘broaden the pie’ by bringing underpenetrated buyers and sellers onboard, digitising small offline businesses and retailers and reaching multiple platforms and geographies. However, the report also noted that ONDC also runs the risk of creating monopolies as is the case with UPI.

Per the latest statistics from the National Payments Corporation of India (NPCI), Google Pay, Paytm and PhonePe hold 95% of the payments market in India.

“We wonder how ONDC will avoid such a scenario wherein the network itself becomes all-encompassing and some of the players gain more market share than the ~60% market share that Amazon and Flipkart currently have in ecommerce,” the report added.

How Does ONDC Compare With Others?

Speaking on the ONDC pilot live in several cities in India, JM Financial noted that the first few verticals to be listed on ONDC were grocery, food and beverages and home decor. However, the report also noted that the pilot phase listed food at similar or higher average prices than foodtech companies such as Zomato.

The same was with groceries, as the pilot phase priced groceries at the MRP, along with a delivery charge on top. Both these instances showed that as of now, other apps are a better value proposition for customers than ONDC.

The report also mentioned that ONDC’s tech needs to be at least on par with the other incumbents in the field, as it noted issues with geo-fencing with the pilot phase.

Many of the players in the fields the network will play in do not have plans for it as of now, the report noted. Nykaa was quoted as stating that it does not have any plans for ONDC, while JustDail noted that it will wait and see.

Zomato was quoted as saying that customers are less likely to move away until the network can perfect the transaction experience. At the same time, PB Fintech (Policybazaar) was quoted as saying that insurance would be hard to sell on ONDC.

While ONDC might still prove to be the UPI moment for ecommerce in the country, there are still multiple issues to address and roadblocks to overcome before that happens.

According to Inc42’s ‘State of Ecommerce in India, Q3 2023’ report, ecommerce in India is set to become a $400 Bn market opportunity by 2030.

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