ONDC: How It’s Reshaping the Way Financial Services are Delivered in India

Indian Fintech industry in the last couple of years has grown leaps and bounds, thanks to the government’s digitization initiatives. Today, Indian financial services like UPI, Aadhar, and Digital Public Infrastructure (DPI) are creating a giant thunder and coming out as the winners of digitization. The same specimen could be seen at the G20 summit when the global leaders witnessed and appreciated the advancement of Indian digitization initiatives.

There are 9K+ FinTechs currently functioning in India, with the country being the 3rd largest fintech hub in the world. This doesn’t seem to stop in the future, with Indian Fintech expected to become a $400 Bn industry by FY2030, witnessing a growth of 4X from today.

So, when the news broke out of ONDC segueing into financial services, it didn’t seem like a shocker. The giant network has always aimed at curbing digital monopolies and creating ample opportunities for small and midsize enterprises. With this new entry, ONDC wants to provide a blueprint for the country to undertake digital financial services as an accessible means of growth, personal and overall.

Purpose-Driven Use of Technology: ONDC’s Key Agenda

Till now, the Indian compliance model has been working on a platform-centric model that primarily focused on making people and the industries at large keep up with daily compliances. So, the end result was drawn in terms of “Scaling What Works.”

ONDC’s entry to financial services will navigate our government’s focus on the idea of “What Works at Scale.”

This model is designed to spread the use of digital platforms and help organizations and businesses of all sizes focus on compliance, enabling them to leverage technology to scale their businesses. These include your roadside Kirana stores, local merchants, and large enterprises. An initiative that truly makes India a One Nation.

From Food to Fintech, ONDC’s E-commerce Penetration

Financial services and the FinTech industry are just a tiny part of the more extensive plans of government-backed ONDC, whose bigger agenda is to unlock the potential of the Indian e-commerce industry.

Leveraging the government’s interoperable network, ONDC’s high agenda aims to perforate the Indian e-commerce industry deeply and has plans to grow the sector by 25% in the coming 2 years, reaching 900 million buyers and 1.2 million sellers.

ONDC is looking to build a nationwide network for the sector, support innovation, and bring on board policymaking authorities, among other things.

How This Development Will Better the Compliance Practice?

ONDC has decided to introduce financial products like gift cards, personal loans, and invoice-based credit on the network in the initial stages. This development will accelerate not just the transparency aspect of purchases and transactions but also build a network of connectivity.

Enterprises of all sizes will be motivated to use and perform compliance solutions like generating and tracking e-invoices – bringing better visibility of records.

Bringing all financial services apps together and building an interoperable platform will be a boom for the financial industry and the Indian government’s compliance hustles.

The Benefits of the ONDC Ecosystem to Tech Platforms can be broadly stated as

• Reduced time to market and time to scale
• Opportunity to drive innovation

The communication gaps will be reduced drastically, and the players will also be interested in curbing compliance ill-practices – leveraging the benefits of better business performance and claiming full Input tax credits.

Harnessing The Power of MSMEs

MSMEs in India contribute to 30% of the GDP, 45% of the exports, and employ 8% of the population. Interestingly, out of 6 crores of MSMEs in India, 95% are FinTech.

This sector is undoubtedly on the rise, and tapping into it is crucial to streamlining our country’s growth. Over 60% of India’s population resides in rural areas and Tier IV-VI cities. These regions form the nation’s economic backbone, where agriculture, forest produce, and traditional crafts thrive.

However, despite recent advancements in logistics and connectivity, these communities have long struggled to showcase their products to a broader audience.

Enter ONDC – the Open Network for Digital Commerce – set to revolutionize the MSMEs in India. ONDC’s mission is to level the playing field for platforms and sellers while providing digital market access to millions of small enterprises and dealers.

How MSMEs Benefit from ONDC – Giving Them Back

ONDC operates as an open-source e-commerce network that enables consumers and sellers to trade independently of traditional platforms. This means that MSMEs can now reach millions of potential clients directly.

It’s no secret that Fintechs will play a significant or dominant role as we advance, with SME Lending, Retail Lending, Fintech SaaS, and Wealth (advisory and brokerage) categories that will see the most fintech growth and innovation.

As ONDC provides an interoperable platform for MSMEs, it opens the door for these enterprises to achieve sustainable profits while also making them adhere to regulatory-compliant business models. The government can track these enterprises’ transactions and data, making it easier for them to keep compliances in check.

It will also help MSMEs penetrate profoundly in the local Indian regions with better payment processing, supply chain logistics, and technology support. This innovative approach can potentially boost rural-led GDP growth, especially in a country where 60% of the population relies on agriculture.

Breaking the barriers of internet visibility, these local enterprises can sell and earn rights from their hometowns, accelerating their growth. ONDC’s interoperable platform seeks to bridge this gap by bringing vendors together, expanding consumer choices, and broadening the reach of sellers.

Market connectivity will no longer be a problem for MSME FinTech as ONDC will accelerate network adoption, drive e-commerce growth in India and globally via collaborations with NABARD, and extend its potential to Farmer Producer Organizations (FPOs).

Conclusion

ONDC’s interoperability can benefit all, and this realization has already sunk in among the top FinTech players. Paytm and Phone Pe (via Pin code) have emerged as two major buyer-side applications, which currently fulfill thousands of orders for ONDC sellers.

In conclusion, ONDC is poised to transform the way FinTech operates in India, unlocking the potential of rural economies and empowering small businesses across various sectors. This innovative platform promises more inclusive and dynamic digital tools and technology to curb ill compliance practices and promote growth through interoperability and an open network for all.