Exclusive: ONDC’s Fintech Fiesta — Loans, Insurance, Mutual Funds To Go Live Soon!

After food, groceries, fashion, and electronics segments, the government-backed Open Network for Digital Commerce (ONDC) is now just a few weeks away from launching an array of financial services, including personal and SMB loans, insurance (car, health and marine), and mutual funds, on the network.

Top industry sources privy to the development told Inc42 that the open network, which has been in the process of onboarding various players in the financial services domain since August, is all set to go live with the aforementioned financial services on the network via buyer applications that are registered with Insurance Regulatory Development Authority of India (IRDAI), Association of Mutual Funds in India (AMFI) and Securities and Exchange Board of India (SEBI).

Last week, on September 22, ONDC launched the ‘ONDC Network Gift Card’ in partnership with Yes Bank and OmniCard, the two issuers of the card.

The gift card is powered by the RuPay Network and can be loaded with a maximum amount of INR 10,000, enabling cardholders to shop using any ONDC-enabled buyer application.

Prior to this, fintech unicorn Razorpay joined the network in April 2023 to streamline payment processes for ONDC’s network participants, including buyers, sellers, and logistic partners.

Moving on, an ONDC spokesperson confirmed the development to Inc42 and stated that the open protocol started integrating with various fintech companies after the draft specifications for financial services were released in August.

Inc42 was the first publication to report on ONDC’s fintech foray.

“In credit, ONDC is starting with personal loans and GST-based loans to individuals and sole proprietors, respectively. The API draft specifications for the same were released in early August for market feedback, post which the integration process was initiated with interested participants. More than 65 entities had expressed their interest in joining the network, either as buyer applications, seller applications (lending institutions) or as technology service providers,” the ONDC spokesperson told us.

The spokesperson added that more than 20 entities have initiated their integration journey. Some names that have initiated integration directly or through technology service providers are Tata Digital, IndiaLends, Easy Pay, DMI Finance, Aditya Birla Finance and Karnataka Bank.

The network will soon start offering auto, health and marine insurance as well, the spokesperson added.

When it comes to investments, the open network is currently planning to go live with mutual funds. Currently, investment routes like stocks, live trading, investments in bonds, etc. have been kept out of the ambit of fintech products on the ONDC network.

“In investments, ONDC will be starting with mutual fund investments on the network and the API specifications for both insurance and investments will be released in the coming weeks. For mutual fund investments, ONDC is working with MFU (MF Utilities India Pvt Ltd) to onboard the asset management companies as seller applications,” said ONDC in an official statement shared with Inc42.

The open protocol also recently launched an “ONDC network gift card” for corporate gifting and employee engagement.

“The gift card is powered by the RuPay network and can be loaded with a maximum amount of INR 10,000. Yes Bank and OmniCard have gone live as the first two issuers of the card, while several other banks and fintech platforms with RBI-assigned pre-paid licences are also preparing to offer the card. A consumer gift card offering was also launched last month with Spice Money as the buyer application and Vistaar (Earnest Data Analytics Private Ltd) as the seller application to facilitate consumer purchases of gift cards of 100+ brands,” the ONDC’s spokesperson informed us.

Meanwhile, ONDC’s working committee of fintech experts comprises names like Ravi Prakash, the head of architecture and technology ecosystem at FIDE; Pramod Verma, the former chief architect of Aadhaar and the cofounder of FIDE; Hrushikesh Mehta, the senior vice-president, financial services, ONDC; Antriksh Parmar, product manager, ONDC; Mohit Monga, VP products, ONDC, and Ashish Desai, financial services advisor, ONDC.

What’s In The ONDC Fintech Cart?

According to ONDC’s financial services specifications on its GitHub page, the open protocol will tap the credit, investments and insurance sectors by bringing financial services institutions and fintech companies onto the open network as buyer and seller applications. 

The buyer and seller side applications will have to be compliant with the RBI’s digital lending guidelines. These players should also be with IRDAI, AMFI, and SEBI, depending on the products they have on offer. 

According to the draft specifications for financial services, ONDC aims to overcome the barriers individuals face while applying for loans or buying insurance or mutual funds.

The protocol would enable the customer to search for any financial product from any company on a single buyer application through various search options — for instance: bank name, ratings, financial product, etc. — and submit an application form once they choose to buy a product.

In the process, consumers will have to consent before sharing their financial transaction history and KYC details with the seller to secure a loan, insurance or make mutual fund investments. 

In the case of invoice-based loans, proprietors will be required to share GSTIN and invoice details with the buyer application, which will be shared with various seller apps (lenders) to enable the processing of loans.

The sellers on the ONDC will use the information received from the buyer to generate final quotes on the loan.

The loan offers and the critical information will then be made available on the buyer application from which a borrower may choose the type of loan to be secured. This is followed by the signing of an e-agreement, disbursal of the loan amount within a limited time period, and sharing of loan documents via an email/link on the buyer app.

Why ONDC’s Fintech Move Makes Sense?

ONDC’s foray into financial services aligns perfectly with the evolving fintech landscape, where regulatory scrutiny is intensifying, and millions of users are opting for digital interfaces over traditional in-person financial transactions.

Further, the open network aims to leverage India’s digital push by giving broader access of a larger customer pool to lenders and insurers. Through this move, ONDC also wants to cater to the underserved, untapped and unsecured credit markets.

According to ONDC, there was a $25 Tn credit gap between seekers and lenders in the SMB lending market in FY22.

Further, the ONDC aims to tap the rural middle-class segment for personal loans segment. As per the platform, there is a $1.2 Tn credit opportunity in this area by 2030. 

From the consumer’s perspective, ONDC plans to replicate the ecommerce model within fintech, offering access to a wide array of products without the bias of margins, advertisements, or commissions.

It also aims to use public digital infrastructure to overcome the challenges of manual banking and provide small-ticket, custom-size financial products to consumers.

When it comes to lenders, the open protocol will not only give wider access to underpenetrated markets but also an opportunity to expand their businesses to digital commerce with the available data.

Notably, the financial institutions that are backing ONDC are SBI, HDFC, ICICI, Axis, NABARD, etc.

ONDC’s Key Challenge

At the core of ONDC’s financial services play remains the crucial data transfer of customers with buyer applications and many seller applications. 

Even as the open protocol has substantiated that all the network participants must comply with industry regulations, it remains to be seen if the government-backed network will not fall prey to unethical practices that have plagued the fintech industry lately.

At the same time, the network will have to work on minimising the occurrences of misselling and cross-selling of financial products, which has remained a concern for borrowers.

While the open protocol is built on standardised digital infrastructure and provides a level playing field for all players, a significant portion of consumers could still prefer trusted channels or sources to share sensitive personal and financial information. Addressing this consumer trust challenge will be imperative for ONDC in the coming days.