ONDC Set To Venture Into Fintech Services, Discounts Won’t Suddenly Disappear: CEO Koshy

Government-backed Open Network For Digital Commerce (ONDC) is likely to venture into the financial products and services segment in a few months, CEO Thampy Koshy told Inc42 in an exclusive interaction.

The open protocol has established a working committee consisting of fintech industry experts. Their objective is to define a standard/protocol for the onboarding and integration of sellers and industry players. Additionally, the committee will decide which fintech players will be onboarded, the ONDC chief said.

At a time when the fintech industry has seen tighter regulations from the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), and Insurance Regulatory (IRDAI), T Koshy maintained that ONDC will enable only those players who provide products and services within the established regulatory framework.

While the ONDC chief refrained from providing specific details regarding the financial products, credible sources suggest that the open protocol is actively considering to onboard insurance, mutual funds/stocks, and personal loan services providers.

Notably, payment giants, Paytm and PhonePe (via Pincode) have emerged as two major buyer-side applications, which are fulfiling thousands of orders for ONDC sellers currently.

ONDC is currently offering services in the grocery, food, fashion, electronics, and mobility segments.

“Before foraying into each one of these segments, we constituted specialised committees to outline the protocols for seamless integration of network participants,” Koshy said.

The open protocol is currently available across 235 cities in India. The network, which aims to cross 1 Lakh orders in a few months, registered 50 transactions a day in January across food and groceries categories.

“The networking partners have also been fine-tuning their services for the past few months, and we have now improvised on many fronts,” Koshy said.

Reliance, Tata To Join The ONDC Grocery Segment

Reliance and the Tata Group, India’s two major conglomerates, are in the final stages of integrating their grocery applications, JioMart and StarQuik, respectively, with ONDC, the network’s CEO told Inc42.

While Tata’s StarQuik is expected to go live in a few days, JioMart is also in the final stages of integration, he said.

In April, ONDC also onboarded Tata-backed BigBasket as a seller to strengthen its hyperlocal grocery play.

Both the corporates are joining the open protocol at a time when Walmart-backed PhonePe launched its ONDC-specific buyer app, Pincode, and Paytm has improvised its consumer-facing app that lists ONDC offerings to gain customers.

Meanwhile, ecommerce giants Amazon and Flipkart are yet to formally reach out to ONDC for onboarding the network as a buyer-side application.

“These etailers have expressed their intentions to join ONDC but have not formally come forward, even though they have integrated some of their services with ONDC,” Koshy said.

Addressing concerns of the sellers who believe that the inclusion of Amazon and Flipkart may undermine the goal of democratising digital commerce, potentially jeopardizing the interests of small retailers, the ONDC CEO clarified that, unlike Amazon and Flipkart, the purpose of ONDC is not to create a captive ecosystem of consumers through discounts or being loyal to a specific set of sellers.

“Even right now, the buyer-side applications, Paytm and PhonePe, have no loyalty to sellers nor are they gaining advertising revenue from retailers like Flipkart, and Amazon. Their main motive is to scale up the level of transactions on the respective platforms,” the ONDC CEO said.

Discounts Won’t Stop Immediately

ONDC’s discount strategy is something that differentiates it from food aggregators like Swiggy, Zomato or other hyperlocal grocery platforms. The ONDC CEO told us that the network will never maximise profits like other companies and the focus will be only on ensuring maximum participation from buyers and sellers.

“We are a Section 8 Private company with 19 institutions that have invested in the ONDC for equity. Under the regulations of Section 8 of the Companies Act, the equity shareholders are not entitled to dividends, hence there will be no profit squeezing. It is more of a utility service, which, on scaling up, will benefit the shareholders since they can strengthen their lines of business if ONDC gains traction,” the CEO said.

Koshy also dismissed the reports which suggested that the government may be funding the discounts on the network.

“There is no budgetary allocation from the government or any financial assistance from the ministry towards ONDC. The discounts are collectively funded by the equity shareholders of ONDC, buyer-side applications like PhonePe and Paytm as well as sellers. Moreover, we are continuously tweaking the discounts depending on the order volumes targets and even geographies where the network goes live,” he added.

The ONDC CEO further said that being reliant on discounts will not be sustainable; however, the incentives will not stop immediately.

It is pertinent to note that the network recently revised its incentive programme, capping the discounts for a buyer at INR 100 on a minimum average order value of INR 200 for food and beverages, and INR 300 for other categories.

The move has come when ONDC said it was averaging around 9,000 orders per day, around 64% down from the peak of 25,000 orders achieved earlier this month.

Meanwhile, Koshy stated that the initial idea of giving discounts was to generate demand and achieve scale.

“The end user may not be fully aware of the business model, and, initially, it is the discounts being offered that attract him. Eventually, as the operational efficiency of the network and logistics capabilities enhance, we are hoping to improve user stickiness as well as new sellers who are willing to announce new offers and schemes specific to ONDC buyers,” the ONDC CEO concluded.

Founded on December 31, 2021, as a private non-profit company by the Department for Promotion of Industry and Internal Trade (DPIIT), the network launched its pilot phase in April 2022 across five cities — Bengaluru, Delhi NCR, Shillong, Bhopal and Coimbatore. ONDC has also started its beta pilot in Bengaluru and some tier 2 cities.

Touted as the UPI of ecommerce, ONDC aims to curb the digital monopolies of a few players and aims to increase the visibility of India’s small and medium enterprises on its open network.