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ONDC Explained: How commissions, search rankings, grievance redressal, and ratings will work

High commissions, lack of transparency on how products are ranked in search, one-sided policies, and platform lock-ins are some of the many concerns that online sellers on existing e-commerce marketplaces like Amazon, Flipkart, Swiggy, and Zomato have. The Open Network for Digital Commerce (ONDC) is being pitched as a solution to many of these concerns, but how exactly will ONDC address them?

ONDC is currently undergoing testing in a few cities but is expected to have a wider public launch sometime this month. Currently active on the network are one buyer app, Paytm; a couple of seller apps including GoFrugal, Seller App, eSamudaay, GrowthFalcons, and Digiit; and logistics providers including Dunzo, Loadshare, and ShipRocket. Buyer apps are platforms that consumers can use to search for products from various sellers on ONDC and seller apps are platforms that stores can use to list their products on ONDC. MediaNama spoke with some of the seller apps to understand how the network will benefit sellers.

Read: What Is The Open Network For Digital Commerce (ONDC) And How Will It Work?

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What are the concerns that sellers have with current e-commerce marketplaces?

Five major concerns that sellers currently face with existing e-commerce marketplaces are:

  1. High commission charges: “The commission charged is either very high or it is not transparent or both,” Nandhakumar V, Marketing Manager, GoFrugal said. Adding to this, Girish Pai, Founder and CEO of GrowthFalcons, explained that “one of the biggest problems for restaurants and cloud kitchens is that they have to depend on Swiggy and Zomato for online sales, which is essentially a market dominated by a duopoly. And these two have commissions between 25-35 percent.” There have previously also been complaints from trade bodies like CAIT and Swadesh Jagran Manchalleging that Amazon and Flipkart charge different sellers of the same product differently.
  2. Lack of clarity on ranking algorithms: “Today most of the products or the sellers are listed based on the algorithms that are defined by the marketplaces. It is a well-known problem that algorithms and the logic behind the listing or sorting are not exposed yet. And the sellers, if they have to list their store or their products in a higher assortment, then they have to pay for the ads,” an industry executive, who wished to remain anonymous, explained. This ties into another problem that has been frequently complained about by sellers and industry bodies: self-preferencing, where private label products of the concerned platforms are showcased higher up in search results.
  3. Ratings and reviews not transferable: “Sellers who want to leave one platform and go to another for whatever reasons cannot do so because their ratings and reviews are not transferable. This ties them down to that platform,” Nandhakumar pointed out.
  4. One-sided policies: Platforms dictate the policies that sellers have to follow in a “take it or leave it” manner. Each seller cannot defines their own policies when it comes to refunds or logistics.
  5. Not visible to all consumers: Sometimes stores nearby might not show up on results for customers and, similarly, a particular seller might not be visible across multiple platforms. “ONDC solves this problem by being hyper-local and also the seller being visible based on my nearest locality, and I may use any of the apps to find out that seller. So the visibility to maximum consumer base is not possible with the traditional marketplace,” Nandhakumar pointed out.

How will ONDC’s commissions compare to current marketplaces?

Will be decided by various stakeholders: Unlike current marketplaces, where the marketplace charges a single fee as commission, in ONDC there are multiple types of fees that can be levied, apart from shipping charges:

  1. Buyer app: The buyer app will charge a buyer finder fee for allowing the seller to discover a buyer. “And currently for this particular fee, Paytm is charging sellers 3 percent of the order value (without GST),” Nandhakumar said. “While this is the present construct, the network is open, which means the buyer app can decide to not charge that particular commission to a seller and instead charge this as a convenience fee to the buyer,” Pai added.
  2. Seller app: “Unlike other traditional marketplaces, the seller has a complete authority as well as the configuration opportunity to charge the way they want,” Dilip Vamanan, Co-founder of SellerApp, said. For example, they can charge an initial integration fee to onboard a seller and then a subscription fee per year for keeping the store up to date with ONDC policies or 2) they can charge transaction-based charges which could either be fixed fee per transaction or commission based on the order value, Vamanan explained. While many seller apps are not charging any commission in the initial phase, GrowthFalcons charges around 7 percent, Pai said, and Economic Times reported that eSamudaay charges a fixed fee of Rs 200 per month for sellers and Rs 100 a month for delivery partners.
  3. ONDC: ONDC can also charge a commission, but to encourage adoption, they are not charging anything at the moment. “In the long run, they would require some amount so that the network itself can run,” Vamanan explained, adding that it will merely be to meet the expenses of ONDC because it is a nonprofit organisation.
  4. Payment gateway or aggregator: The payment gateway/aggregator used to facilitate the transaction will charge a certain percent of the order value as commission based on the payment method chosen by the user. “The payment gateway charges will be the same as any other e-commerce transaction” but “shipping charges should be lower because of hyperlocal sellers,” Kunal Jhunjhunwala, Founder and MD, Airpay, said.

Commissions will overall be lower than existing platforms: 

  • Lesser commissions but cannot do a one-to-one comparison: Amazon or Flipkart charge anywhere between 18 to 25 percent as commission depending on the category whereas on ONDC you can expect charges around 6 to 15 percent, Vamanan said. “But, it’s really not a one-to-one comparison because there are additional benefits you are getting on existing marketplaces. For example, you are shipping your item to Amazon and the product is in the Amazon warehouse and then Amazon is fulfilling it. So that involves warehousing, order management, delivering, return management, etc, which is a slightly different model compared to what we are talking about,” he added.
  • Lower costs of customer acquisition in ONDC: One industry executive explained to us that the commissions are likely to be lower in ONDC because current platforms charge high commissions to cover their cost of customer acquisition. But in ONDC’s case, the customer acquisition cost is nearly zero because it is going to be there in all the apps that customers are already using, for example, Paytm, PhonePe, and WhatsApp.
  • More competition will lead to lower commissions: “If a particular seller is not happy with a seller platform, they can easily switch to another seller platform and retain all his transactions, reputation etc,” Nandhakumar remarked. “We expect the commissions to become lower, driven by market forces and increased competition, once volume on ONDC picks up,” Jhunjhunwala added, suggesting that seller apps will consciously charge low commissions to remain competitive.

No charges will be levied by seller apps at launch: The seller apps MediaNama spoke to indicated that they will not charge any commission on sellers in the initial stages of ONDC to encourage adoption and to understand the business model better. “None of the fees is mandatory and it is left to the Network Participant to charge or waive off,” Jhunjhunwala said. SellerApp’s Dilip Vamanan said: “We are not charging any commission as of now. I think in the long term we are looking to ensure that the platform is absolutely free for a small business or a beginner. Let’s say if they are making Rs. 50,000 or 1 lakh per month, we would ideally like the platform to be free and post that it will be based on the revenue.”

Will be transparent and cannot be obscured: “ONDC requires the commissions which are being charged to the seller to be published publicly,” Vamanan said. It will also likely be transparent because unlike in traditional marketplaces where the entity that receives the money and the entity that settles with the seller is the same entity, here the buyer app will do the collection and it gives the money to the seller app and then the seller app settles to the sellers. The status and other information have to be passed to the network, which means it’s hard to hide figures.

How will ONDC address the lack of algorithmic transparency?

Algorithms have to be transparent: “All the buyer applications are bound to publish their sorting and filtering algorithms, at least the criteria in the top level so that there is no preferential treatment given to a particular seller,” Vamanan explained.

ONDC has a policy to prevent discriminatory conduct: There are also agreements that both buyer apps and sellers apps sign, which state that no discriminatory sorting can be done, Vamanan added.

Buyer profiling cannot influence search results: “The way the network works is that when a product is getting searched in a buyer app, it sends the request real-time to the network and gets a response. It’s not that the data is stored in the buyer app and processed according to the needs of the buyer or based on the buyer’s behaviour,” an industry executive explained. For example, buyer apps cannot profile users and show products from brands they are more likely to buy.

How will ONDC handle seller reputation differently?

Ratings and reviews will be portable: “The beauty of ONDC is when a seller switches from one seller platform to another, they get to carry their reputation with them. In ONDC when a seller is on a seller platform called X and then they come to GoFrugal, the seller rating is going to remain the same,” Nandhakumar explained. “So this is what they call a network-wide reputation,” he added.

Will be handled by an independent entity: “It needs to be a central, independent service outside of a seller or a buyer application so that sellers can port their reputation without hassle,” Vamanan opined.

Still in the discussion phase, there might be no rating mechanism in the pilot stage: The people MediaNama spoke to indicated that the rating and reputation management system is still in the discussion phase and is not going to get released in the pilot stage  Since the pilot stage is focused on groceries, there might not be any kind of rating system at all, Vamanan said. “If you look at even Dunzo in the grocery segment right, you may not find the rating of a store or a product there because, in this segment, most of the products are actually standard unlike an apparent or home improvement product,” he explained.

What is ONDC’s process for seller grievance redressal?

Support APIs will be provided for both buyer and consumer redressal: According to people MediaNama spoke with, the way ONDC is expected to work is through a support management API, which seller and buyer apps will integrate with. There will be a ticketing mechanism between the seller apps and buyer apps and any disputes the buyer will raise in the buyer app or the seller in the seller app, the same will be validated and forwarded to the concerned entity, the industry executives explained. “So any complaint from sellers will come to us (seller app) and it will come to our dashboard,” Vamanan said to illustrate the point.

ODR system for escalation of complaints: If the complaint remains unresolved for either the buyer or seller, for example, if the buyer has raised a bogus complaint and the seller has to refund, then that is an issue for the seller. This will still be an open ticket, and in this case, ONDC will introduce a mechanism called an online dispute resolution (ODR) system. This will probably be a third-party agency, industry executives said. And if the complaint is still not getting solved, all consumer products come under the liability of getting sued in a consumer court.

Working on ways to make this smoother and faster: “Any queries that get placed at the buyer app will now get passed on to the seller. But we are still working out ways to make this smooth and reduce the overall turnaround time. We are defining certain criteria under which the buyer app can determine and give the customer a refund before even contacting the seller. For example, if a customer says they ordered a veg biryani but got non-veg, then the refund will be issued and the buyer app will connect with the merchant later and claim that amount. The same goes for logistics,” Pai explained.

ODR is still being discussed and tested, might not launch in the pilot stage: For the pilot launch, it appears that the support ticketing system is going to release and later the ODR system will come into the picture. “Each and every ‘edge case’ is being worked out. We want to make ONDC more robust, based on feedback. Before testing it on the public, ONDC will have to prepare an entire framework and put it on public domain by the end of this month for eliciting comments from all stakeholders,” a government official told Business Standard recently. “A few years ago, not many people wanted to shop on e-commerce platforms. However, because of the systems that companies in this space built, such as ease of returning products and a plethora of choices available to customers, these platforms became very popular. When ONDC is launched, it will be judged and benchmarked against these platforms,” the official added. ONDC is expected to publish its draft framework for dispute resolution in two weeks, Economic Times reported on September 20.

How will ONDC handle fake reviews?

One of the major concerns for both buyers and sellers in the e-commerce sector is the rampant prevalence of fake reviews. It affects consumers when they are led to buy products that might not be of the quality that reviews make them out to be and it affects sellers when their reputation is tarnished without merit. To address this issue, the Department of Consumer Affairs (DoCA) May 28 announced that it will develop a framework to curb fake reviews on e-commerce websites.

Buyers and sellers in ONDC will also be victims of fake reviews when the network launches to the public, but ONDC stakeholders believed that the prevalence of fake reviews will be less pronounced in ONDC. But ONDC models can probably reduce fake reviews because of their hyper-local nature. You are likely to know the store it is coming from because that will be your neighbourhood Kirana store, and so you will know the reputation of the store, one industry executive explained.

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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