ETtechThe Open Network for Digital Commerce (ONDC) plans to levy two kinds of fees to meet its costs in the long run, the non-profit company’s chief business officer Shireesh Joshi said.
While Joshi did not detail a timeline for when the fees will be rolled out, he said that ONDC envisaged two kinds of charges—an annual registry fee for network participants and a levy on every transaction that goes through the network.
“ONDC currently is not charging anything but it doesn’t mean it won’t charge anything forever. ONDC is a not-for-profit Section 8 company, so right now our shareholder funds are sufficient for several more months to come, and if need be we will have the ability to raise more,” Joshi said, addressing a workshop on ONDC organised by the National Restaurants Association of India (NRAI).
“We do think that long term everything is not going to be funded through shareholder funds. Eventually, we will have to build a model through which our ongoing expenses are recovered. We don’t need to make profit and we will always be a lean organisation,” he added.
ONDC was incorporated in December 2021, and has received an investment of Rs 180 crore from 19 banks and financial institutions, including ICICI Bank, State Bank of India, Axis Bank, HDFC Bank, Small Industries Development Bank of India (SIDBI), and National Bank for Agriculture and Rural Development (NABARD).
Last week, brokerage firm Jefferies has noted that “the popular narrative currently seems to be that lower prices imply Zomato/Swiggy are over-charging” but the reality is, the firm had said, that despite significant scale, steady rise in take-rates and acute cost focus, both are barely making any profits. Notably, on Thursday, Swiggy announced that its food delivery business turned profitable in March, excluding employee stock option costs.
“In the long run, we expect two kinds of charges. This is not a declaration that this is what we will charge but we envisage the possibility of two kinds of charges. One is we anticipate an annual registry fee for participants. It will be very nominal on an annual basis and even as a percentage of transaction for a moderate-scale player, it will be very negligible,” Joshi said.
“The other charge we might levy is a very small percentage per transaction. When we will be doing billions of transactions, even a small fraction will be enough to recover our costs. The principle is to keep ONDC cost zero, and charge such a minimal fee that it is not a roadblock for even a small seller wanting to sell on ecommerce,” he added.
In a research note dated May 17, brokerage firm JM Financial said that including various commissions charged by seller and buyer side apps, commission rates on ONDC have a potential to go up by 10-16% for restaurant discovery itself.
“Magicpin has not yet started charging restaurants towards commissions that it has to shell out towards the buyer app commissions (3% in case of Paytm) and commissions that it would have to share with ONDC (which is not charging currently but could charge the seller app 1-2% on a sustainable basis). We, therefore, believe current commission rates are grossly subsidised,” the brokerage firm noted.
While Joshi did not detail a timeline for when the fees will be rolled out, he said that ONDC envisaged two kinds of charges—an annual registry fee for network participants and a levy on every transaction that goes through the network.
The comments have come at a time when brokerages and research firms have questioned the sustainability of ONDC’s model, which is currently driven by discounts and subsidies. Joshi said on Thursday that the principle is to keep ONDC’s costs zero, and charge a minimal fee that does not impact small sellers on the network.
“ONDC currently is not charging anything but it doesn’t mean it won’t charge anything forever. ONDC is a not-for-profit Section 8 company, so right now our shareholder funds are sufficient for several more months to come, and if need be we will have the ability to raise more,” Joshi said, addressing a workshop on ONDC organised by the National Restaurants Association of India (NRAI).
“We do think that long term everything is not going to be funded through shareholder funds. Eventually, we will have to build a model through which our ongoing expenses are recovered. We don’t need to make profit and we will always be a lean organisation,” he added.
ONDC was incorporated in December 2021, and has received an investment of Rs 180 crore from 19 banks and financial institutions, including ICICI Bank, State Bank of India, Axis Bank, HDFC Bank, Small Industries Development Bank of India (SIDBI), and National Bank for Agriculture and Rural Development (NABARD).
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Last week, brokerage firm Jefferies has noted that “the popular narrative currently seems to be that lower prices imply Zomato/Swiggy are over-charging” but the reality is, the firm had said, that despite significant scale, steady rise in take-rates and acute cost focus, both are barely making any profits. Notably, on Thursday, Swiggy announced that its food delivery business turned profitable in March, excluding employee stock option costs.
“In the long run, we expect two kinds of charges. This is not a declaration that this is what we will charge but we envisage the possibility of two kinds of charges. One is we anticipate an annual registry fee for participants. It will be very nominal on an annual basis and even as a percentage of transaction for a moderate-scale player, it will be very negligible,” Joshi said.
“The other charge we might levy is a very small percentage per transaction. When we will be doing billions of transactions, even a small fraction will be enough to recover our costs. The principle is to keep ONDC cost zero, and charge such a minimal fee that it is not a roadblock for even a small seller wanting to sell on ecommerce,” he added.
In a research note dated May 17, brokerage firm JM Financial said that including various commissions charged by seller and buyer side apps, commission rates on ONDC have a potential to go up by 10-16% for restaurant discovery itself.
“Magicpin has not yet started charging restaurants towards commissions that it has to shell out towards the buyer app commissions (3% in case of Paytm) and commissions that it would have to share with ONDC (which is not charging currently but could charge the seller app 1-2% on a sustainable basis). We, therefore, believe current commission rates are grossly subsidised,” the brokerage firm noted.
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