MSMEs on ONDC: A whitepaper Commerce@Bharat by consulting firm Deloitte India on Thursday explained the role of the government’s open e-commerce initiative Open Network for Digital Commerce (ONDC) in democratizing the e-commerce landscape in India. The whitepaper deep dives into how it will support and enable India’s MSME ecosystem to get onto the e-commerce bandwagon with the e-commerce sector projected to reach $350 billion by 2030. Below are the key areas, according to the whitepaper, where ONDC can make a positive impact for MSMEs in India:
Transforming demand and supply side network: ONDC creates an opportunity for brands/ retailers/MSMEs to efficiently and cost-effectively address their demand and supplier connect, according to the whitepaper.
On the demand side, the paper explained, ONDC can provide MSME suppliers access to their customers while focusing on their core capabilities of designing and manufacturing products. They can expand their business via easy access to digital commerce, diverse logistics options, and a large customer pool. MSMEs can also get better access to credit. With a broad network across seller and buyer apps, third-party services providers, and logistics and dispute resolution providers, the cost of using the network is expected to be relatively low.
On the supply side, MSMEs can expand their reach and maintain a competitive advantage due to low-cost access to ONDC. They can also improve their access to credit.
“ONDC has the power to unlock the entrepreneurial potential of our nation and federate access to supply chain participants like never before. It will help organise the large SME sector and build the foundation for creating global Indian brands,” said Akash Srivastava Partner, Deloitte India.
Opening of new markets and segments for financial institutions: The paper noted that MSMEs have been served mostly by local brick-and-mortar bank branches and have limited access to commercial banking products and services. Moreover, the lack of data related to MSMEs has meant that credit approvals, based on traditional decisioning models in most instances, get rejected.
According to the paper, the ONDC ecosystem is expected to digitise the data available on SMEs (using transaction data) with the help of financial technology services providers and DPI (such as account aggregators). The digitised data will enable financial institutions to develop a better understanding of this client segment to tailor products and services. The increased adoption of ONDC in tier two and three cities and rural areas will open newer segments for banks and also drive tailored products and services catering to this segment’s needs.
Faster KYC and sharper credit models: Faster completion of the Know Your Customer (KYC) process is one of the crucial elements that will propel financial services providers’ participation in the ecosystem. According to the whitepaper, traditionally, the onboarding and KYC processes for businesses have been a pain point for the industry especially due to lack of data on MSMEs in the public domain.
The ecosystem will have requirements for smaller ticket transactions with high volume. A high KYC cost will be a major deterrent for financial institutions to fulfil this need as it will not be a commercially viable proposition.
For individuals, the cost of KYC has reduced significantly with the introduction of CKYC (video KYC costs between Rs 15 and Rs 30 against CKYC which costs Rs 1.10 to download the record). CKYC is the Central Know Your Customer Registry or a centralised depository of KYC documents of customers availing different services of the financial sector.
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The whitepaper suggested that A CKYC-like model for businesses and collaboration across ecosystem participants on data sharing will be a defining factor influencing participation from the larger financial institutions.
Boosting credit card adoption: Credit cards are also a means of working capital management for MSMEs but are not popular amongst businesses in India due to little understanding of how these products work and how they can add value to the firm, the whitepaper said. Also, financial institutions shy away from offering these cards to firms with almost negligible credit history and taking the responsibility of managing the administration of cards issued to firms.
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The whitepaper noted that the ONDC ecosystem has the potential to address some of these concerns as the data generated on the ecosystem can make credit assessments easier. Financial institutions will then have access to the larger MSME community and may find it lucrative to run campaigns to improve product understanding. To tap into this market, the paper suggested that financial institutions can join forces with financial technology service providers focusing on simplifying corporate credit card administration.