Financial Services
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Indian MSMEs and the blooming middle class in T2/T3 cities present a unique opportunity to cater to the financial needs of a massively underserved segment
Source: BLinC Invest MSME Lending Report 2022; MSME Annual report, World Economic Forum 2018, Morgan Stanley Research, World bank, Oliver Wyman analysis
63.4 million MSMEs, contributes 30% to India’s GDP
The MSME sector has a total credit demand of INR 69.3 trillion, growing at a CAGR of 11.5%
Less than 15% of the demand being catered by formal sources
MSME disbursements have grown 2x over the last 2 years, majority of the growth has happened on account of increased penetration in Tier 3/4 cities
63.4 m
Indian MSME has witnessed robust growth and associated financing needs are also rapidly growing….
#of MSME as of FY22
Rural
Urban
….however there are some gaps between demand and supply sides as still sector remains underserved
Demand
Gap
Addressable Demand
MSME credit gap as of FY22 - $tn
India vs Globe
MSME contributes 30% of total GDP
Global average: MSME contributes ~50% of total GDP
USD | | No of HH’s, Mn | | No of HH’s, Mn |
Above 35,000 | | 5.9 | | 25.2 |
10,000 – 35,000 | | 70.8 | | 165.8 |
5,000 – 10,000 | | 106.1 | | 122.6 |
0 – 5,000 | | 112.1 | | 46.9 |
| 2021 | | 2031F | |
2%
24%
36%
38%
Transformation from a bottom-of the-pyramid economy to a mass affluent
7%
46%
34%
13%
2030F
2005
7.0%
2018
2018–2030 CAGR
| Megacities | 14.0% |
| Booming cities | 13.7% |
| Rest of urban | 11.4% |
| Developed rural | 15.0% |
| Other rural | 10.6% |
Consumer spending and demands are shifting from traditional centers
|
Consumer expenditure by city types (% total)
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A few dominant distributors and manual processes have resulted in uncompetitive terms for smaller sellers which has resulted in reduced choice for buyers
Limited choice for sellers
Oligopoly in digital commerce reduces negotiating power of sellers
High cost of product delivery excludes buyers at the lower end of the economic pyramid
Manual processed leads to high cost of delivery and hence makes sachet products unviable to deliver. This drives financial exclusion
Current commission structure
Exorbitant commission demanded by online marketplace makes it difficult for small sellers to compete and tap into digital marketplaces
Discoverability of sellers
Discoverability of sellers is based on margins as well as based on the money spent on advertisements – hence, it becomes difficult for small firms to be discovered by buyers
In the context of financial services Sellers refer to Banks, NBFCs, AMCs, Insurers
High technology costs due to custom integrations
Customer integration requirements between businesses leads to high technology cost and increased time to market
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ONDC has built low cost digital infrastructure that creates a level playing field for sellers and provides more choice to buyers
| Rs. 3.75 lakh Cr additional GMV |
| 730 Cr additional purchases enabled by the network |
| 90 Cr buyers on the network |
| 12 lakhs seller on the network |
| Cover 75% of pin codes across India |
Seller Application
Seller
Buyer
Buyer Application
Buyer
Buyer Application
Buyer Application
Seller Application
Seller
Seller Application
Unified experience, single platform for all domains, wider options for price and delivery
Discoverable by entire buyer universe, one-time single registration, autonomy on rules & terms, low cost access to value chain
ONDC Protocols
ONDC Protocols
ONDC Protocols
ONDC Protocols
Buyer finder fee
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ONDC has received investment and support from a wide range of leading institutions
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ONDC’s impact is now visible
73 Seller Applications
6.03L+ Sellers (Mobility+Retail)
3.3crores+ SKUs
22 Buyer Applications
~ 100 Million Potential Buyers
16 Logistics Applications
Pincode
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Manual processes and non-standard API integrations have restricted access to markets
Manual processes drives up customer acquisition costs
A completely digitized product and service delivery is the only way to deliver financial products at scale
Lack of high provenance third party data to serve the right product to the right customer
High customer servicing costs
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Enabling financial products on ONDC will result in financial inclusion for the underserved and surface new products and more choice for buyers
Cost Reduction | Reduction in operational costs | Use of public digital infrastructure (Aadhar, UPI, Account Aggregator) helps deliver sachet sized financial products to previously unreachable customers in an economically viable fashion |
Protocol standardization resulting in easier integration | API standardization reduces custom integration costs | |
Streamlined customer acquisition costs | Access to large pools of customers reduces customer acquisition costs for seller | |
Market Expansion | Access to a larger customer pool unrestricted by geography | Demand and supply aggregation by the creation of a digital network creates access to large pools of customers for sellers and wide choice for buyers |
New uses cases created with the support of ONDC that will unlock new markets e.g. sachet cash flow credit and investments, sachet insurance products | ||
Venturing into e-commerce | Financial institutions have opportunities to develop buyer app and venture into e-commerce for the sale of products in other domains like groceries |
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Account aggregator adoption has already led to significant improvement in operational efficiency and fraud reduction in lending
Income verification
Cost of loan processing
Bottom Line uplift
Fraud rates
Credit limit improvement
4-5%
0
INR 100
55%
Lift in revenue
27%
35-45%
After AA
7-10%
Before AA
After AA
After AA
After AA
After AA
INR 440
After AA
Before AA
Conversion improvement
Operational efficiency
Increase in customer base
Fraud rates
Fraud cost reduction
5%
0
38%
66%
Increase in multi-bank discovery
25%
8%
After AA
After AA
After AA
After AA
After AA
After AA
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ONDC has initiated the work in financial services across 3 categories
Real time reporting of credit data for participating lenders has been agreed to with credit bureaus
Credit guarantee from CGTMSE and interest subvention from MSME Ministry will be enabled for certain use cases
Individuals: Unsecured Personal Loans
Sole Proprietors: GST data powered MSME Seller Financing
Purchase Finance
Unsecured Working Capital Lines
Credit Cards
CREDIT
INSURANCE
INVESTMENTS
Motor Insurance
Health Insurance
Marine Insurance
Life Insurance
Mutual Funds
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Product Roadmap - Financial Services
Credit
Additional use cases to be developed in consultation with the market participants
Insurance
Investments
Unsecured Lending
Secured Lending
Standalone Products
Group Products (to be taken up post completion of Phase 1 and 2)
Custom Products (to be taken up post completion of Phase 1 and 2)
Mutual Funds - Phase 1
Stocks & Bonds (Phase 2 - to be taken up post completion of Phase 1)
Gold - Phase 3
Fixed Deposits - Phase 4
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Pipeline - Financial Services
Credit
Insurance
Investments
Buyer Applications
Seller Applications
Buyer Applications
Seller Applications
Buyer Applications
Seller Applications
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Customer flow for MSME GST based financing through ONDC Network
An MSME Seller seeking unsecured financing based on GST Invoice data, Bank Statement data (via AA) and Credit Bureau data
Any entity adhering to digital lending guidelines (Lending Service Provider (LSP) in this case)
RBI licensed lender adhering to digital lending guidelines
Buyer app collects preliminary information from the buyer (Name, PAN, Udyam etc.), and GST information via a GSP, to enable curated search.
Buyer app forwards the search request to Seller apps via ONDC gateway
Sellers use information received from buyer (GST & PII), AA (bank statement data) and a credit bureau to generate final quotes. Sellers provide final quotes along with the Key Fact Statement and other critical information to the buyer on the buyer app via ONDC gateway
Buyer selects product based on final quotes from seller. Seller pushes KYC status to buyer via buyer app and additionally sends KYC completion link in case KYC is not completed. Seller app requests buyer to provide disbursement account information. This information is collected on the buyer app
Seller pushes information regarding E-Nach/ E-Mandate set up to the buyer via the buyer app. This is followed by Agreement-signing and E-Stamping (optional). Seller makes disbursement into borrower’s account within a limited time period and shares the loan document with the buyer via email/ link on the buyer app.
Buyer app enables a post disbursement flow incorporating loan status, loan schedule, payment due date and pre-payment options
Customer
Sample customer flow
Borrower login to buyer app
Buyer app
Seller app/seller
Buyer search
Search response
Product selection and KYC
Order confirmation & transaction closes
Post disbursement
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Customer flow for Unsecured Personal Loans through ONDC Network
A buyer seeking an unsecured personal loan based on Bank Statement data (via AA) and Credit Bureau data
Any entity adhering to digital lending guidelines (Lending Service Provider (LSP) in this case)
Lender (underwriter) adhering to digital lending guidelines
Buyer app collects preliminary information from the buyer (Name, PAN, etc) to enable curated search.
Buyer app forwards the search request to Seller apps via ONDC gateway
Sellers use information received from buyer (PII), AA (bank statement data) and a credit bureau to generate final quotes. Sellers provide final quotes along with the Key Fact Statement and other critical information to the buyer on the buyer app via ONDC gateway
Buyer selects product based on final quotes from seller. Seller pushes KYC status to buyer via buyer app and additionally sends KYC completion link in case KYC is not completed. Seller app requests buyer to provide disbursement account information. This information is collected on the buyer app
Seller pushes information regarding E-Nach/ E-Mandate set up to the buyer via the buyer app. This is followed by Agreement-signing and E-Stamping (optional). Seller makes disbursement into buyer’s account within a limited time period and shares the loan document with the buyer via email/ link on the buyer app.
Buyer app enables a post disbursement flow incorporating loan status, loan schedule, payment due date and pre-payment options
Customer
Sample customer flow
Buyer login to buyer app
Buyer app
Seller app/seller
Buyer search
Search response
Product selection and KYC
Order confirmation & transaction closes
Post disbursement
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Customer flow for General Insurance purchase through ONDC Network
Customer
Sample customer flow
Buyer looking to purchase insurance as a base product
Buyer login to buyer app
IRDAI registered broker, Web aggregator or Corporate agent
Buyer app
Seller app will be of IRDAI registered Insurers (OEMs)
Seller app/seller
Buyer app collects product specific information to enable curated search . This information is broadcasted via the ONDC gateway to the seller applications
Buyer search
Only insurers that have agreement/partnership with buyer app will respond to search. Search response will include final quotes/ premiums
Search response
Buyer selects product from the results from the insurers that have responded to the search query
Product Selection and Information Sharing
Seller application will forward payment gateway link to buyer app. Buyer makes payment on the PG link of seller that is rendered on the buyer app. Seller receives payment and confirms the status to buyer app. Seller will share the digital document with buyer via link through buyer app as well as on registered mail address
Order confirmation & transaction closes
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Customer flow for Mutual Fund purchase through ONDC Network
Buyer looking to purchase mutual funds as a product
AMFI certified distributor/SEBI Registered Investor Advisor
Seller app will be of SEBI regulated mutual fund
Buyer app broadcasts intent to purchase via the ONDC gateway to the seller applications
Only mutuals funds that have an agreement with the distributor will respond to the search. Search response with product information (liquid funds and index funds)
Buyer selects product from the results from the mutual funds that have responded to the search query. Conducts KYC check .Onboarding details with Bank account information is collected. Seller penny drops to verify bank account
Additional information with regards to Purchase and SIP is collected. Payment is collected from the buyer
Buyer app enables NAV /transaction update, additional investment and redemption flows
Customer
Sample customer flow
Borrower login to buyer app
Buyer app
Seller app/seller
Buyer search
Search response
Product selection and KYC
Order confirmation & transaction closes
Post purchase
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An institution can participate in 3 distinct roles
ONDC
Buyer App
Technology Service Provider (TSP)
Seller App
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Reach Us:
E-mail: fs@ondc.org
For how to get started, please refer to the integration guide - available at
Thank you!
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