Digital Lending Added to India’s Open Commerce Network

Since its launch in 2022, India’s Open Network for Digital Commerce (ONDC) has made substantial progress in transforming the digital commerce landscape. The ONDC, a government-funded nonprofit, provides a comprehensive set of APIs that enable tech companies to develop innovative financial services for consumers and businesses. Over time, it has grown to facilitate 12 million monthly transactions in diverse sectors such as food delivery and mobility. This expansion reflects its success in fostering connections between Indian startups, established enterprises, and major e-commerce players like Amazon and Flipkart.

Building on this success, the ONDC has now ventured into the financial services domain, marking a significant shift in its strategy. On Thursday, the organization announced the introduction of APIs designed for digital lending. This new service aims to offer unsecured loans to both salaried and self-employed individuals, a move anticipated to boost financial inclusion across the country.

The digital lending APIs are notable for their potential to enhance efficiency and speed in the loan process. Unlike traditional loan applications, which can take several days to process, the ONDC’s digital loans are expected to be completed in just six minutes. This rapid turnaround could transform how individuals access credit, making it more convenient and accessible.

As part of this initiative, the ONDC has onboarded a variety of lending service providers and banks. Initial partners include EasyPay, Paisabazaar, Tata Digital, Invoicepe, Cliniq360, Zyapaar, IndiPe, TyrePlex, PayNearby, as well as major lenders such as Aditya Birla Finance, DMI Finance, and Karnataka Bank. These entities will utilize the ONDC's standardized framework to deliver loan services, enhancing their reach and operational efficiency.

Looking forward, the ONDC plans to expand its digital lending services further by incorporating additional fintech players and financial institutions. Upcoming partners include MobiKwik, Rupeeboss, and Samridh.ai, along with banks like HDFC Bank, IDFC First Bank, and Kotak Mahindra Bank. This expansion will broaden the availability of loan products and services, making them more accessible to a diverse range of users.

T Koshy, MD and CEO of ONDC, highlighted the organization’s vision of creating an open network where a wide range of products and services can be accessed through a single protocol. This approach aims to simplify the integration process and enhance the overall user experience. The network will leverage government-backed services such as Account Aggregator for data management, DigiLocker and Aadhaar for Know Your Customer (KYC) processes, and Aadhaar eSign for transaction verification.

The ONDC’s initiative is supported by investments from several commercial banks and financial institutions, which will collaborate on the digital lending services. By harnessing data from the network, lenders will be able to reduce the risk of bad debts while expanding their loan portfolios.

Despite these advancements, there are concerns about the potential risks associated with scaling digital credit. Nitin Chugh, DMD at SBI, emphasized the need for responsible lending practices and effective guardrails to prevent irresponsible lending as the network grows. Ensuring responsible underwriting will be crucial as the ONDC expands its financial services.

By the end of September, the ONDC plans to broaden its digital lending offerings to include GST invoice financing loans, purchase financing for individuals and sole proprietors, and working capital lines for private companies. Additionally, the network aims to introduce insurance and investment services over time, further enhancing its role in India’s digital financial ecosystem.