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Fintech's Debut into the Government's ONDC

An interesting article in The Economic Times said you can buy tomatoes at just Rs. 70 per kg from the comfort of your home through Open Network for Digital Commerce (ONDC). Doesn't this puzzle your mind? While market rates are above Rs. 150 per Kg, how ONDC is offering at less than half of the market rate. Let's start by understanding what ONDC is to give rest to your mind.

What is ONDC

In 2023, the revenue in the e-commerce market is likely to grow to US$71.29 billion, further projected to rise by 13.9% over the next five years. At a time when online commerce will outpace offline retail by 2.5 times in the next decade, as projected by Deloitte, the government has taken a decisive step towards leveling the playing field for smaller retailers swept in the directions that private e-commerce giants take them.

The core tenet of ONDC revolves around a straightforward yet powerful concept: forging a digital standard within the e-commerce sector, facilitating seamless connectivity between all sellers and buyers on its expansive network.

ONDC and It's Potential

E-Commerce: Closed Loop Vs. Open Loop



How Fintech Fits in the Workflow

Beyond retailers and consumers, ONDC has also opened the gates to the fintech and banking sector to change financial services in India. Be it as the buyer and seller apps, via partnerships with leading lenders, or even through financing MSMEs, ONDC can offer differing but equally lucrative value propositions in financial services.  

Buyer Apps

  • Buyer apps can offer diverse financial services like travel insurance, payment financing options, etc.
  • Potential for substantial growth in consumer financing, currently valued at $3 billion
  • Online purchasers receive financing choices at checkout, complete with clear benefits and terms
  • Customized credit and insurance offers based on individual buyer profiles, providing access to multiple lenders, rates and discounts

Some examples of buyer apps on ONDC are Paytm, Mystore, Pincode, Magicpin, etc.

Seller Apps

  • Seller apps (financial services providers) enhance products and underwrite processes for broader consumer access to credit and insurance products
  • ONDC fostering an open, inclusive and competitive marketplace can unlock new customer connections for banks & fintech
  • NBFCs and niche fintech can leverage open network data for targeted offerings and partnerships with other fintech companies
  • Collaboration potential between NBFCs and fintech companies to expand their service suite and reach a broader customer base

Examples of seller apps include Shiprocket, Mystore, uEngage, Bitsila, etc.

Small Businesses (MSMEs)

  • ONDC facilitates MSME credit needs and drives significant growth in lending, according to McKinsey
  • Integrating ONDC with key platforms (GeM, Sahay, TreDS, RXIL) revolutionizes MSME credit access
  • Data flow from various sources (Income Tax, GST, Credit Bureau, AA Supplier Banking Data) along with ONDC's supplier scores provides a comprehensive MSME creditworthiness view
  • Financial institutions can offer formal credit with competitive pricing, tailored to specific MSME preferences (e.g., invoice financing, short-term insurance)
  • Access to multiple data sources improves underwriting decisions, enabling timely and appropriate credit provision


  • ONDC integration with leading lenders on open credit-enabled networks for discoverability and embedded credit at the point of sale (POS)
  • Licensed service providers (LSPs) and credit monitoring through AA leading to faster turnaround times and access to verifiable documents with a single click
  • Recurring repayments through UPI/NACH supporting end-to-end needs across business cycles through supply chain financing
  • ONDC network offers embedded insurance products for MSMEs' goods during shipping and export
  • Financial institutions provide value-added services like tax filing, advisory, personal financing and legal counsel to MSMEs, either directly or through ONDC partners
  • Empowering MSMEs to focus on product building while buyers concentrate on UI and customer experience

Case In Point: PhonePe Ushers in a New Age

PhonePe, one of India's largest UPI apps, recently launched 'Pincode,' a hyperlocal e-commerce app built on the Open Network for Digital Commerce (ONDC). As the first buyer-side app on ONDC, it caters exclusively to customers in Bengaluru. The move enables seamless transactions between buyers and sellers on different platforms connected to ONDC, offering a unique shopping experience. Pincode was developed separately to cater to distinct product expectations and concerns over order volumes led to this decision. The app focuses on onboarding seller apps and PhonePe refrains from intervening in pricing, with commissions remaining in single digits.

Reaching the Grassroots and targetting rural India

While the onset of the ecosystem building for ONDC may have started with the big players in the big cities, a large part of India is rural and underserved and needs to be targeted by the platform.

Governments have long dreamed of changing how shops function in smaller cities and villages of India with more significant digital intervention. Therefore, the primary goals for ONDC and Fitechs beyond the cities are to:

  • Empower rural consumers with access to products and services commonly found in urban areas
  • Facilitate nationwide market access for rural manufacturers, enabling improved pricing and enhanced exposure for their offerings

The bigger players hesitate to step into and the smaller ones do not have the means to expand in the rural playground because of barriers like low purchase power, lack of understanding and infrastructure, etc.

However, the 5-year goals for ONDC will also trickle down to the rural sectors. Hence, it is a good time for fintech oriented toward serving this area to hop on the ONDC.



Case In Point: PayNearby, SpiceMoney and Sidbi aim for Rural Integration

Commerce met with business correspondents and rural-focused fintech to explore how they can further the government's open commerce plans. Fintech companies like Spice Money and PayNearby have already piloted efforts to onboard merchants for the ONDC network. Others are expected to join soon, while some take a cautious wait-and-watch approach. Spice Money is live as a buyer app on ONDC, allowing agents to purchase products for their stores or consumers through an assisted e-commerce model. ONDC has also signed an MoU with SIDBI to onboard small and medium-sized businesses, boosting their e-commerce participation. This collaboration aims to unlock new opportunities in the digital commerce landscape.

How will ONDC change the lending landscape?

ONDC's comprehensive data flow and open network architecture will pave the way for an array of innovative financial services, empowering consumers and businesses with tailored solutions and enhancing the overall financial landscape in India. It can be broadly generalized under these two subsets of lending:

Impact on Fintechs and Banks


  • Modern and unrestricted marketplace for retail and wholesale
  • Fintech companies can become holistic banking tech stack providers
  • A wider range of customer data to help personalize their banking experience


  • Grievance redressal in ONDC still not live
  • ONDC still lacks proper data privacy and security policies
  • ONDC requires policies to scale with it constantly as it continues to grow

ONDC and OCEN - $5Trillion Protocols

When combined with Open Credit Enablement Network (OCEN), ONDC can become a ground-breaking idea to propel India towards a $5T economy.


ONDC aims to provide a level playing field for MSMEs to sell online and reduce dependence on aggregator marketplaces. It plans to onboard more sellers than Amazon, Flipkart, Swiggy and Zomato in the next few years. OCEN, leveraging the Account Aggregator framework, enables easy access to credit for individuals and small businesses. The overall plan includes financial inclusion, digitization of companies and accessible digital

Case In Point: Razorpay Pioneers the Payment Gateways in ONDC

Mumbai-based Razorpay, a full-stack payments and banking platform, becomes India's first payment gateway to join the ONDC ecosystem, offering payment reconciliation services for buyer and seller apps. The service streamlines ONDC transactions, providing a single view of all transactions for participants. Razorpay aims to support the government's vision of democratizing e-commerce and empowering Indian SMEs and Kirana store owners. ONDC's open network approach expands SMEs' buyer universe, fostering transparency and inclusion in digital commerce.

Closing Thoughts

The Future of Fintech and E-commerce with ONDC

ONDC's impact on digital lending is poised to be transformative. With an expanding ecosystem, the platform will witness a surge in revenue-based financing, working capital loans and supply chain financing solutions. Retail lending will flourish with options like Buy Now Pay Later, enabling credit purchases on ONDC and building credit histories for thin-file borrowers. Embrace India's open E-commerce platform, as ONDC fosters a seller-first, consumer-focused marketplace, ushering in new players and facilitating seamless loan product discovery for borrowers and lenders.

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Fintech's Debut into the Government's ONDC

  • January 23, 2024
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