Handbook on building Open Networks: The journey of ONDC so far

This handbook documents the evolution of the Open Network for Digital Commerce (ONDC) in India, presenting it as a case study and a foundational guide for building similar open networks. It aims to provide a shared understanding of ONDC’s technical, governance, and sustainability aspects, offering practical insights and decision frameworks for stakeholders like businesses, startups, and governments looking to leverage or replicate the open network model. The document functions as a tool to help others “leapfrog digital commerce journeys” (p. 3).

Core Arguments & Findings

Unbundling Digital Commerce (Chapter 1)

• Problem: Traditional e-commerce faces issues like market concentration (limiting user choice, platform lock-in), closed platform models (constraining seller autonomy), and steep transaction costs (prohibitive for smaller players like MSMEs) (p. 11).
• ONDC’s Approach: ONDC acts as an open network, not a platform, built on the beckn protocol. It facilitates transactions between buyers and sellers using various compatible applications, promoting a decentralized and participatory market (p. 10). It renders sellers discoverable across multiple platforms and unbundles services (like logistics, discovery), allowing specialization and reducing costs (p. 11).
• Stakeholders: The ecosystem includes Sellers (B2C/B2B), Buyers, Network Builders (buyer/seller apps, logistics, gateways, dispute resolution providers), and a Support Community (investors, advisors, etc.) (p. 12).
• Rationale for Open Networks: They offer inclusivity (lower barriers, wider access), autonomy (participant agency), sustainability (collaborative governance, trust), and resilience (less dependence on single entities) (p. 13).
• Guiding Principles: Four key principles shape open networks: Inclusion & Participation, Innovation & Decentralization, Security & Minimalistic Design, and Transparency & Grievance Redressal (p. 14).

Building Appropriate Technology (Chapter 2)

• Participants: Transactions involve Network Participants (NPs) (Buyer apps, Seller apps, Gateways directly involved in transactions) and Ecosystem Participants (EPs) (TSPs, RSPs, ODRSPs, CAs providing enabling services) (p. 17).
• Technology Stack: ONDC comprises three layers (p. 18-19):
  • Protocol Layer: beckn protocol (core specs) and domain-specific API extensions.
  • Network Layer: Defines participant interaction rules (Business Layer), governance/policies (Governance Layer), operational infrastructure like Registry and Gateways (Infrastructure Layer), and enabling frameworks like RSF, IGM (Extension Layer).
  • App Layer: NP-built buyer and seller applications used by end-users.
• Onboarding: A three-stage process (Onboarding, Testing, Production) facilitated via a self-service portal (p. 20). NPs build ONDC-compliant APIs and MVPs, test in a sandbox, get certified, and go live (p. 20).
• Data Handling: ONDC is “data blind,” not storing personal data centrally. Data resides with NPs, who are custodians and must comply with data protection laws. ONDC uses anonymized, aggregated data for network health monitoring (p. 21).
• Technology Enablers: Scaling requires:
  • Testing & Compliance: Ensuring NPs meet standards for seamless, secure operation (p. 22).
  • Knowledge Products: API contracts, checklists, handbooks, guidance infrastructure (p. 23).
  • Extensible Connectivity: Supporting diverse interfaces (apps, websites, voice, POS) and integration with other services (p. 24).
• Architecture Choice: ONDC mandates standards for interoperability and conduct (like fair discovery) but is not prescriptive about how NPs operate internally, balancing consistency with innovation (Option 3, p. 25). It acts as a technology standard-setting institution (p. 26).

Institutionalising Responsible Governance (Chapter 3)

• Governance Pillars: ONDC’s governance rests on (p. 30):
  • Corporate Institutional Design: A Section 8 (non-profit) company structure enabling participatory governance and focus on network advancement over revenue.
  • Techno-legal Architecture: Embedding legal principles (interoperability, openness, decentralization) into the technology infrastructure.
  • Participative Network Policies: Minimal policy-making by ONDC as a facilitator, with input from User Councils and expert advisories.
• Network Policies: Cover Onboarding/Compliance/Certification, Network Data Governance, Business Rules, and Issue & Grievance Management (IGM) (p. 31). Policies are dynamic and evolved collaboratively (p. 32).
• Participation: Enabled through Advisories (expert input on sectoral issues) and a rotating User Council (NP representatives involved in policy creation/revision) (p. 33).
• Institutional Design: ONDC chose a private non-profit model (Option 4, p. 34) for independence, credibility, community focus, and operational autonomy, avoiding investor pressure for profit (p. 35).
• Operational Design: ONDC employs a participative coordinating agency model (Option 3, p. 36), setting policy and ensuring compliance in consultation with NPs and civil society, fostering trust and ownership (p. 37).
• Governance Enablers: Scaling relies on:
  • Network Observability: Tools/metrics for participants to monitor growth, performance, and health (p. 38).
  • Guidance Infrastructure: Support systems, documentation, standards, SoPs (p. 39).
  • Service Devolution: Gradually ceding functions (like certification) to the ecosystem (p. 40).
  • Autonomy & Self-Service: Empowering NPs via tools like the Participant Portal (p. 41).

Thinking Through Sustainability (Chapter 4)

• Funding & Support: ONDC leverages diverse sources:
  • Financial: Initial corpus from shareholders including public sector banks, private banks, institutional investors (QCI, Protean), and statutory bodies (SIDBI, NABARD) (p. 45). Future open networks might use public budgets, public sector capital, private capital, or grants (p. 48).
  • Non-Financial: Shared resources (beckn protocol from FIDE), capacity building (ONDC Academy, QCI tools), volunteering (GitHub contributions), and grassroots integration (state nodal officers, DPIIT support) (p. 46).
• State’s Role: The government acts as an incubator (bringing experts, guiding setup), champion (promoting adoption, building trust), and leverage provider (sponsoring hackathons, launching schemes, appointing nodal officers) (p. 47).
• Sustainability Levers: Beyond finance, crucial levers include shared resources, capacity building, volunteering, and grassroots integration (p. 49).
• Sustainability Enablers: Long-term viability depends on:
  • Community Development: Creating spaces (hackathons, GitHub, calls) for discussion, ideation, and stakeholder input into architecture and governance (p. 50).
  • Community Contribution: Enabling external feedback, solutions, and contributions to code, architecture, and processes (like certification, ratings) (p. 51).

Gauging Pluralistic Impact (Chapter 5)

• Impact Framework: Potential impact is assessed across economic and societal dimensions at three levels: Individual, Firm, and Market (p. 55).
  • Individual: Wider access, agency in choices, rationality gains (economic); consumer-centric pathways, inclusion (societal) (p. 56).
  • Firm: Expanded clientele, reduced costs, new use cases/models (economic); consultative business evolution, last-mile access for MSMEs (societal) (p. 57).
  • Market: Impetus to local industry, cross-border trade growth, market efficiency (economic); collective nation-building, favourable policy landscape (societal) (p. 58).
• Making Open Networks Possible: Requires an orchestration function across stages (p. 59):
  • Convene: Ideation, ecosystem mapping, stakeholder engagement.
  • Bootstrap: Building core tech, network, governance; pilots.
  • Grow: Improving usability, deepening community support, enabling linkages.
  • Expand: Scaling funds, innovating products/services, strengthening partnerships.

Key Statistics & Data

• As of March 2024, the ONDC Network had expanded to 1000+ cities and 15 domains (p. 10).
• The network includes participation from major public sector banks, private sector banks, institutional investors, and statutory bodies as shareholders (p. 45).

Methodology

The handbook synthesizes learnings from ONDC’s development journey, based on research commissioned by ONDC and conducted by Aapti Institute (p. 61). It maps ONDC’s evolution, dissects its technical, governance, and sustainability components, and presents a decision-making framework (p. 3). Each chapter uses a structure including:

• Context: Relevant literature/background.
• Spotlight: How ONDC embodies specific choices.
• Enablers: Operational considerations for building networks.
• Principles: Design considerations for future networks (p. 3). The approach involves analyzing ONDC’s strategy documents, policies, technical specifications, and operational practices.

Key Conclusions & Recommendations

• Open Network Model: ONDC demonstrates a viable alternative to platform-centric e-commerce, promoting democratization, interoperability, and unbundling.
• Core Principles: Building successful open networks requires adherence to principles of inclusion, decentralization, security, minimalism, transparency, and participation across technology, governance, and sustainability aspects (p. 14, 27, 42, 52).
• Design Choices Matter: Key decisions like using open protocols (beckn), adopting a non-profit structure, establishing participative governance mechanisms (User Council), and acting as a standard-setter are crucial for ONDC’s model.
• Enabling Ecosystem: Sustainability requires fostering community development and contribution, alongside diverse financial and non-financial support, including strategic government roles.
• Orchestration is Key: Successfully launching and scaling an open network involves distinct phases requiring active coordination: Convene, Bootstrap, Grow, and Expand (p. 59).
• Readiness Assessment: Potential adopters should evaluate viability (existing digital ecosystem, transaction volumes, infrastructure, talent, legal framework) and potential (market penetration, digital awareness, SME pool, startup ecosystem) using structured questions (p. 60).

Stated or Implied Applications

• The primary application is providing a blueprint and practical guidance for other countries, sectors, or organizations seeking to build their own context-specific open networks (p. 3).
• It serves as a tool for businesses and startups to understand how to leverage and participate effectively within the ONDC network or similar ecosystems (p. 3).
• The framework can help policymakers understand the components and considerations for fostering Digital Public Infrastructure for commerce.

Key Questions Addressed or Raised

Questions Addressed:

• What is ONDC Network and how did it evolve? (p. 9, 10)
• What problems does ONDC attempt to address? (p. 9, 11)
• Who are the stakeholders in the ONDC ecosystem? (p. 9, 12, 17)
• Why should countries adopt open networks? (p. 9, 13)
• What are the technology layers and architecture of ONDC? (p. 16, 18-19)
• How is personal data handled on ONDC? (p. 16, 21)
• What are the pillars and mechanisms of ONDC’s governance? (p. 29, 30-33)
• How is ONDC structured institutionally and why? (p. 29, 34-35)
• What financial and non-financial resources support ONDC’s sustainability? (p. 44, 45-46, 48-49)
• How does the state contribute to ONDC? (p. 44, 47)
• How can the potential impact of open networks be assessed? (p. 54, 55-58)

Questions Raised (for future network builders):

• What are the suggested principles for designing/governing open networks? (p. 9, 14, 27, 42, 52)
• What technology/governance/institutional/operational design options are available? (p. 16, 25, 29, 34, 36)
• What technology/governance/sustainability enablers are needed for scaling? (p. 16, 22-24, 29, 38-41, 44, 50-51)
• What needs to be done (orchestration stages) to make open networks possible? (p. 54, 59)
• Readiness Assessment: (p. 60)
  • Viability: Is there a sufficient ecosystem of digitized participants, viable transaction volumes, digital service providers, ICT infrastructure, leadership talent, auxiliary services (logistics, RSP), and a supportive legal/regulatory framework?
  • Potential: Is there increasing internet/smartphone penetration, digital awareness, a large pool of SMEs needing enablement, and a growing startup ecosystem?