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ONDC and its impact on digital payments

Open Network for Digital Commerce (ONDC) is a non-profit company that will display products and services across all participating e-commerce platforms. For example, if the buyer searches for any product on a platform integrated with ONDC, for example, Flipkart, then the Flipkart app will connect to the ONDC platform. ONDC will then list the network companies from where the item can be bought.

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The platform intends to reduce the monopoly of large e-commerce platforms like Amazon and Flipkart. It plans to open up unexplored opportunities to micro, small, and medium enterprises and small traders and empower them to compete with the biggies by bringing them online.

A surge in the use of digital payment mechanisms such as net banking, UPI, and cards, depending on the value of transactions, is evident as real-time payments will become the most suitable mode of payment on the ONDC platform. It will improve the overall digital banking experience and reduce dependence on multiple e-commerce platforms and payment systems.

ONDC improves the transparency and accountability of invoices generated for SMEs, which can help increase their creditworthiness. Hence, this scheme facilitates Buy Now Pay Later(BNPL), a payment facility that has already been adopted across e-commerce platforms around the globe. Banks, NBFCs, and lending platforms can use ONDC to access a rich collection of potential customers backed by high-fidelity data-driven insights, which will drive asset growth and improve asset quality.

ONDC isn't just for the retail sector. It will also cover business-to-business transactions. ONDC aims to provide an open network for all aspects of digital trade and promote digital inclusion among small merchants. Moreover, RBI recently introduced a single-block-and-multiple debits scheme to encourage digital payments. This functionality will boost confidence in transactions as merchants will be assured of payments on time while the funds remain in the customer's account until the actual delivery of goods or services. It will also drive the digital India campaign launched by the government and reduce the physical cash circulation in the system.

Moreover, the introduction of the digital rupee and better interoperability on ONDC is likely to increase the utility of money and reduce fraud to a great extent. With central bank digital currency (CBDC)/digital rupee set to launch in 2023, it is expected to gain traction on the ONDC platform.

As of now, ONDC is at a beginner's stage, and it will still take a year to take shape and scale sufficiently to achieve the stated objectives. However, India's highly-grown digital ecosystem, and extensive government support for the initiative, will further boost innovation in the payment space. And the Indian payment sector might act as a template for the world to emulate.

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