- Are the measures ONDC is taking sufficient to address the question of building trust among market participants?
- Which (if any) of the measures are likely to be counterproductive, and should be
- Do these measures offer a level of trust amongst participants that is comparable to or greater than what the platforms are currently able to elicit?
These are some of the questions that the Open Network for Digital Commerce (ONDC) is seeking to address in a consultation paper published on September 29, 2022. The company is looking to build trust on the ONDC network before it is opened to the public at large.
“ONDC needs to put in place iron-clad mechanisms to build trust. It is therefore essential for ONDC to identify some immediate areas of improvement, over and above the current design for fostering trust in the network,” read the paper, a copy of which was reviewed by Medianama.
The paper highlighted the need to have “iron-clad mechanisms”, which will be built using feedback received in the consultation. It added that people can submit their response here till October 31, 2022.
Why it matters: ONDC is currently undergoing testing in a few cities but is expected to have a wider public launch. It is difficult to foster trust in a decentralised system, where responsibility and control is spread across multiple entities. Therefore, it is important to understand what measures it will take to build trust in the ecosystem.
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Trust-building measures in ONDC
The paper said that the ONDC is looking to build an open, interoperable network on which buyers and sellers can transact without necessarily being on the same platform.
The paper has explained the life cycle of a transaction and detailed the measures taken to foster trust in each of these stages.
Search and Discovery
The paper said that the functionality, along with the display of responses to buyers, looks “identical” to existing e-commerce platforms.
Gateway bias: The paper stated that the network has provisions to stop a gateway from selectively sending out search requests to seller apps of its choice. It is ensured that requests are sent to all relevant seller apps, and responses are returned, without any filtering or exclusions.
- It is mandatory for every search request to be sent to the gateway. Moreover, there is a policy preventing entities behind gateways from running a buyer app or seller app.
- What is a gateway: They play a crucial role as they function as nodes for multicasting search queries and collecting results.
Listing of search results: The paper explained that the network policy makes it mandatory for buyer apps to publish their minimum standards so that sellers are aware of how they need to maintain their catalogues.
- It also revealed that a buyer app is required to reciprocate as a seller app by bringing its sellers on to the network.
- The paper contended that a buyer App can apply its proprietary algorithms to sort sellers in the response listing but it is required to explain broadly how the algorithm works.
- They should also publish general guidance for sellers who wish to be ranked higher in the priority. These results should be clearly marked as “boosted/sponsored”.
- Lastly, buyer apps cannot send a search exclusively to its “closed user group/ captive sellers” in case they operate a marketplace outside the network.
Placing an order
The process of placing an order begins after the buyer has received responses for a search. Here are the measures highlighted in the paper:
Displaying accurate information: The network has mandated seller apps to report accurate and complete information. It also has asked to relay this information without any modifications or obfuscations. They have to keep the following in mind—
- Ensure that there are detailed product descriptions,
- Declare terms and conditions for returns/ refunds/ cancellations clearly,
- Specify the price declared by the seller (which cannot be greater than the MRP) separately from any other charges such as convenience fees, packing charges etc.
- Mention fulfilment terms such as delivery time and delivery charges accurately.
Transaction-level contracts: The paper claimed it as an “ONDC innovation” which allows network participants, who have no pre-existing relationships, to enter into binding contracts to facilitate purchases over the ONDC Network. It builds trust, as per the paper, because both parties are bound by this contract to facilitate the order’s completion and fulfilment.
The paper clarified that the fulfilment stage overlaps with the order placement stage in the network. It added that there is no mandate on who can take on the responsibility of delivery. The protocol allows both buyer apps and seller apps to deliver the product.
Freedom to manage order fulfilment: The paper believes that the flexibility to choose how to manage order fulfilment is an “important aspect” of building trust in the network because it allows participants to conduct their business on their own terms.
Provision of on-network logistics: The paper said that the option permits sellers to deliver orders, even if they do not have any logistics setup of their own. The network policy makes it compulsory for logistics service providers to provide accurate and complete information to buyers.
- The policy also directs logistics companies to inform the buyer of the charges as a “clear, separate line item in their bill.
- Furthermore, the terms of the logistics services are bound by a contract between the seller app and logistics service provider.
- “This will engender additional confidence among sellers that their shipments will be safely delivered to their buyers,” read the paper.
Payment and settlement
The responsibility of facilitating and resolving payments and settlements is spread across multiple entities in the ONDC model.
“A sound settlement system has to meet two objectives. First, prevent misuse of collected funds and ensure timely settlement,” read the paper.
Preventing misuse of funds: “The settlement system employs a special type of bank account (similar to a Nodal Account), which ensures that funds collected are only paid out according to specific, system-generated triggers, which are governed by the settlement terms in transaction-level contracts,” the paper revealed.
- The funds will not be withdrawn for any other purposes. Every participant will have to maintain such an account, as per the policy.
Ensuring timely settlement: The paper elaborated that the protocol requires all settlements to be performed within 24 hrs of the event being triggered. The settlement terms allow for flexibility in payment terms and settlement triggers, the paper added.
- It also explained that trust is fostered because a transaction-level contract is legally binding and programmatically enforceable.
Returns, refunds and cancellations
“Returns, refunds and cancellations play a significant role in cultivating trust in an e-commerce network, given that the entire notion of physically examining the product before purchase is moot, and also logistics may be outside the control of the buyer,” the paper said.
Building transparency: The paper said that the network addresses the issues of trust in “returns, refunds and cancellations mainly through transparency and mutual agreement between buyers and sellers”.
- The policy stipulates that the seller has to disclose their terms upfront at the time of making an offer to the buyer. The terms are also coded into the transaction-level contract.
- It added that violations can become grounds for filing a grievance/dispute, and repeated violations can result in disciplinary action because the terms are encoded in a contract.
Issue and grievance management
“Issue and grievance management (IGM) is a critical component of building trust among both buyers and sellers,” the paper said, adding that ONDC has taken a different approach to issue and grievance management than e-commerce platforms.
ONDC’s IGM system resolves issues in three phases:
Internal Issue Resolution: “The first level of issue resolution attempts to resolve issues internally. The resolution may be offered through an automated solution (such as a chatbot) or by a customer service person, or through a hybrid model,” read the paper.
- The paper added that the quality of grievance resolution (in terms of timeliness, satisfactory resolution, pendency rate etc.) will be published under ONDC’s Open Data Initiative, with an appropriate degree of anonymisation.
Grievance Redressal Officers: This particular role is responsible for resolving grievances raised against all participants. They are required to evaluate liability of their respective app towards the issue raised and resolve the issue once liability is ascertained.
- “Failing to provide timely resolution can lead to the network participants having to face disciplinary action or a drop in ratings in the scoring and badging system or both,” read the paper.
ODR (Online Dispute Resolution) Service Providers: This level includes dispute resolution methods such as mediation, conciliation and arbitration. The details of how ODR will be incorporated into the network is under development currently.
The paper whittles down its trust measures to following areas:
- Provide an interface or a convenient mechanism to file and track issues,
- Ensure coordination to provide resolution in a time-bound manner,
- Put a process which allows for easy sharing of transaction-related information as per ONDC protocol.
What are the other measures mentioned in the paper?
KYC of Network Participants: The paper stated that the ONDC network will be open for everyone provided they meet the criteria for participation. It said that the requirements include applicants to submit the following—
- Legal Entity Name,
- PAN number,
- TAN Number,
- GST Number
- Bank Account Number.
ONDC’s Common Taxonomy: “A product taxonomy is a framework to systematically classify products,” the paper remarked, adding that taxonomy forms the foundation on which “search and discoverability is operationalised”. The paper said that it will be built on standards and benchmarks from established, commonly accepted practices amongst sellers, buyers and e-commerce entities.
Cataloguing as a service (CaaS): The paper noted that building high-quality catalogues is a “complex exercise”, and many sellers are unable to keep up with it. The paper said that ONDC will enable provision of CaaS which will be provided by specialised Technology Service Providers (TSPs).
Scoring and badging system: It has been defined as a “user-driven system to rate the quality of the product, and the performance of Sellers and Logistics Service Providers” in the paper. It added that the system will provide an indicator of the trustworthiness of players on the network as it offers a metric for a buyer, seller or another participant to decide whether to do business with the concerned entity.
- The paper explained that buyer apps and seller apps will share ratings data with an independent agency which will compute scores on the basis of their past score and their history of disputes.
Enforcement and compliance framework
The network said that it will require entities to be compliant on two counts— technical and policy. The process will be slightly more complicated to enforce compliance with policy, the paper observed.
- The network will require an undertaking from participants at the time of onboarding, that they will comply with the policy.
- The compliance will be assessed through regular audits, and social audits performed by research organisations.
- The range of action for not complying with the network policy may include a simple warning or a complete ban from the network depending upon the severity of the infraction.
Community governance and network evolution
The paper said that ONDC will constitute a council consisting of representatives of entities and members of civil society. The ‘User Council’ will perform the following functions:
- Review existing policies and processes and advise on changes/amendments
- Provide guidance on instituting new policies and procedures, conducting compliance audits, and social audits (including mystery shopper surveys)
- Provide guidance on developing new functionalities on the network
- Advise on matters related to governance, technology and policy
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