“In fact, comparisons are being made with Unified Payment Interface (UPI), which had disrupted the digital wallet payments ecosystem in the past. We, however, strongly disagree with many of these assertions,” it said in a report.
The investment banking firm said the current commissions charged by network participants are not sustainable. The seller-side app currently charges about 7% commission for discovery and 22% commission when the delivery charge is added.
This seller-side app may have to pay a commission to the buyer-side app, which is about 3%, and ONDC, both of which have not started collecting it. “We, therefore, believe current commission rates are grossly subsidised. This means commission rates on ONDC have the potential to go up to 10- 16%,” JM Financial said.
Even then, the firm goes on to say that the current commission structure is not very different from that of food tech companies. Zomato earns 21-22% commissions on sale value from restaurants, which includes both advertisement and delivery charges, the report stated. If one were to reduce the ad and delivery commission, Zomato’s delivery charge would be 9-10%, which is broadly comparable to the current commissions of seller apps on ONDC, it argues.
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Food tech companies are also better at subsidising the delivery costs to customers. Through ONDC, restaurants have the option of collecting the delivery charge upfront from the customer or subsidise it completely.
“Assuming restaurants decide to offer free delivery to customers, their own earnings would proportionally get impacted unless they have their own fleet with the cost of operation significantly lower than that of the food techs, which is very rare,” JM Financial said. “On the other hand, if they choose to pass on the delivery cost to customers, the cost of delivery for the customer is likely to be significantly higher compared to that of the food techs.”
If customers enroll in loyalty programmes like Zomato Gold or Swiggy One, the pricing difference benefit of ONDC gets partially, if not completely diluted because the customer is likely to get not just higher discounts but also a waiver of the entire delivery fee.
These food tech companies will also have better user interfaces, experience and advertising, which will attract high-quality users.
This is yet another research report that has come out saying that ONDC would not be a threat to Zomato and Swiggy. On May 12, Jefferies published a report that the benefits of scale enjoyed by Zomato and Swiggy could outweigh the open protocol and resource pooling offered by the ONDC when it comes to food delivery.
ET reported on May 9 that of the total orders that are serviced on ONDC’s network, around 97-98% are food and grocery orders. ONDC is yet to show any significant traction for ecommerce orders, according to several industry sources. ET reported on May 10 that there are multiple snags affecting the network’s ability to take on ecommerce giants like Amazon and Walmart-backed Flipkart.
From sellers not updating inventory listings and payment reconciliation issues to delivery frauds and logistical glitches, the ONDC network has witnessed roadblocks even as it spreads its presence across the country,
