ONDC’s financial inclusion angle fits perfectly within the network’s noble objective of digital inclusion
An enticing promise for financial services on ONDC is the fluid flow of participant data
The network will help the institutions scale partnership lending, gaining them exposure to a wide range of players in the ecommerce system
The lending business has seen a rapid transformation in the past decade. It has gone from a brick-and-mortar model that saw customers approaching banks to one that emphasises being where the customers are (i.e. embedded finance).
Now, with ONDC rolling out financial services on the platform, there seems to be another digital lending revolution in the offing: one that will see credit reach a larger pool of the population, including the credit-starved MSME sector.
ONDC’s financial inclusion angle fits perfectly within the network’s noble objective of digital inclusion. After all, access to financial services is key in any inclusion story.
But here’s the big question: What do lenders have to gain from getting onboard ONDC? Is the effort worth it at all?
What Does ONDC Provide For Lenders?
Large Borrower Pool
ONDC aims to democratise commerce by bringing players across the ecosystem onto a single digital platform. As per a McKinsey report, ONDC has the scope to onboard 80 to 90 Mn self-employed workers and six to seven times more MSMEs into the ecosystem.
This is simply on the seller/merchant side. Add to the list other players—logistics service providers, technology service providers, buyer platforms, and end customers (among others)—and we’ve got a buzzing ecommerce ecosystem with massive lending potential.
Availability Of Data
An enticing promise for financial services on ONDC is the fluid flow of participant data. ONDC’s decentralised modules allow buyers and sellers to own and access consent-driven data. For example, banks lending to merchants on ONDC can now access sales and inventory data from the platform with the latter’s consent. The data can then help assess the borrowers’ creditworthiness.
Standardised Technology
ONDC has a standard set of APIs between participants, allowing easy integration within the network. Sellers (including financial institutions) can integrate with one buyer app and get listed on other buyer apps with minimal effort.
Currently, outside of ONDC, onboarding a partner for a lender is quite complex. It demands heavy technical expertise and operational effort.
In contrast, getting on board ONDC, thanks to the standardised technology can help lenders expand and achieve their partnership-lending goals with ease and at scale.
How Can Lenders Benefit From Getting Onboard ONDC?
New Channels Of Disbursal
ONDC will act as a new channel of loan disbursal for banks and NBFCs. The network will help the institutions scale partnership lending, gaining them exposure to a wide range of players in the ecommerce system—seller merchants, B2B and B2C customers, logistics service providers, tech enablers and more.
Sharper Underwriting
Lenders have visibility into more borrowers’ granular details, enabling precise credit assessment. Better underwriting gives lenders more confidence to lend to cohorts that were otherwise deemed risky.
Personalised Credit Products
With abundant data from a large pool of the population, lenders will be able to segment their borrowers and personalise their offerings to suit very specific needs and use cases in the future.
Discoverability And Access To New-To-Bank Customers
ONDC enables banks and NBFCs to be present in several touch points of the ecommerce value chain, enabling participants to discover credit services with ease. This, however, is contingent on a well-planned strategy for visibility on the part of lenders.
Reduced Ops Costs
ONDC solves several pain points for lenders: customer acquisition, ease of tech integration, and economic-yet-accurate underwriting being some of the most obvious ones. Lenders can maximise their disbursals, lend to NTC customers, and provide super-personalised offers – without major operational overhead. And that, perhaps, is the ultimate benefit that ONDC can offer financial services!
The Bottom Line
ONDC is growing, slowly but surely. The network recently clocked a record 5.5 Mn transactions in December. This is from a mere two thousand orders in January last year. With the launch of financial services and the use of the network for unique use cases (case in point, the ONDC-backed Namma Yatri), the business is sure to attract many entities in various capacities.
There’s no doubt that the ground is now fertile for banks and NBFCs to capitalise on this opportunity. So how can banks go about it? For starters, institutions will need to brace for massive growth. Lenders must ensure their systems are nimble yet robust to handle lending at a large scale.
We foresee institutions moving away from fragmented legacy origination systems to integrated agile ones, bolstered by business rule engines that can handle dynamic borrower segmentation and one-click underwriting.
With the right technology in place, lenders can expect to see their borrower pool expand at a pace like never before.
