Our open network for digital commerce must win trust

Livemint, August 23, 2022

By Aparajita Srivastava and Amol Kulkarni

A key reason for the success of e-commerce is the presence of platforms that can act as trusted intermediaries between buyers and sellers, offering a safe and secure online marketplace. Armed with resources and reach, they play an important role in ensuring that consumers receive timely delivery of quality goods, and merchants are able to supply goods with the help of necessary logistical support and receive payments in time.

But over-reliance on platforms raises concerns of concentration risk and exclusion. Platforms are increasingly recognizing and addressing such concerns. The Open Network for Digital Commerce (ONDC), envisioned by the Indian government, aims to address such concerns by promoting unbundling and interoperability in the e-commerce ecosystem through an open e-marketplace. It aims to remove private platforms from the centre of the value chain and democratize e-commerce by means of a decentralized facilitator-driven network, wherein participants offer diverse services that range from marketplace services, logistics and warehousing to aggregation, white-label selling, etc.

This works in theory. However, thought needs to be given to potential risks and unintended consequences, feasibility and the challenges of scalability. For instance, the ONDC makes network participants responsible for managing the order life cycle, including but not limited to customer and seller onboarding, catalogue management, order management, invoicing and reconciliation, warehousing and inventory management, logistics, customer support, returns management, payments, among other things.

While more clarity is required, this may require some network participants reaching out to other players offering specialized services across the e-commerce value chain. To ensure on-demand availability of such services, they may need to be offered attractive terms, eventually turning some network participants into centralizing intermediaries to ensure end-to-end transaction surety. Managing the entire order life cycle requires scale and smaller network participants may be left with no option but to strike arrangements with larger participants. An entirely decentralised network looks unfeasible.

Moreover, the ONDC envisages that a buyer and seller need not be on the same application to discover each other, but will have the ability to connect through different apps, enabled and certified by the ONDC. However, it will also be possible for a network participant to simultaneously play both buyer and a seller, while offering enhanced options to other network participants. While this may place end-to-end integrated players and niche players on the same pedestal, it may mean transaction and payment flows differ with the roles network participants play, creating ambiguities. The applicable laws may also differ with the roles that players play in the ONDC ecosystem. This requires clarity too.

In addition, the ONDC’s success is contingent on participation and adoption by a wide range of participants, and through them, merchants on one side and buyers on the other. While the open nature of the ONDC may make this possible, this very nature also opens the possibility of suspicious elements joining the network, ostensibly as service providers, sellers or consumers. The decentralized nature of the network may make it hard to keep them out. It may make fixing accountability difficult and the redressal of grievances cumbersome, which could reduce overall trust within the network.

A related problem is the role and structure of the ONDC itself. Incorporated as a not-for-profit company, it is majority owned by private sector institutions, most of which are likely to act as, or have an interest in, network participants, directly or indirectly. This may lead to conflicts of interest, as ONDC decisions may be driven by its large shareholders to the exclusion of other voices that need to be heard.

The ONDC is also expected to provide services like a registry for enlisting network participants, payment processing, etc. It is also likely to certify network participants and their applications, and levy user charges for operations. It will also develop rules and a code of conduct in consultation with network participants, and may eventually evolve into a self-regulatory organization.

It is not clear if consumers and merchants, which are the ultimate beneficiaries of the ONDC project, will have any role in its governance or rule-making processes. Without sufficient clarity, checks and balances and accountability, its multiple roles may come in conflict with each other, and could result in harm to vulnerable stakeholders.

The ONDC will also act as facilitator of dispute resolution among its participants. However, by current plans, this will happen without it viewing transaction data. It is not clear how the ONDC will carry out this function and handle the grievances of consumers and merchants, which will be critical for this network to function smoothly and instil trust. In all, it thus appears that in its pursuit of speed, the ONDC may end up compromising consumer and merchant interests.

While significant ambiguity persists with respect to its design and functioning, some clarity is likely to emerge as ONDC network policies develop. Entities in the e-commerce ecosystem should proactively engage with the ONDC to obtain more transparency and approach integration accordingly.

These are the authors’ personal views.

Aparajita Srivastava & Amol Kulkarni are, respectively, a partner at Ikigai Law and director (research) at CUTS International

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