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Writer's pictureYashwarya Gupta

What’s ONDC Lending & How It Works?

Updated: Sep 23

ONDC (Open Network for Digital Commerce) is making waves in India’s digital economy, and if you're a business owner, tech enthusiast, or just curious about the future of e-commerce, understanding ONDC is crucial.


But did you know, that ONDC is not just about e-commerce; it’s set to revolutionize digital lending in India. As the digital lending market evolves, ONDC provides a game-changing platform that makes access to loans simpler and faster, especially for small businesses and underserved communities.


 

What Financial Services Does ONDC Provide?

What Financial Services Does ONDC Platform Provide?


What is ONDC and how does ONDC work? What financial services are provided by ONDC Platform?

ONDC (Open Network for Digital Commerce) is not just transforming e-commerce; it’s also increasing access to a wide range of financial services across India. Here's a quick breakdown of the financial services you can access through the ONDC platform:


1. Digital Banking Solutions


ONDC integrates with various banks and financial institutions to bring comprehensive digital banking services to its users.


  • Manage Accounts Effortlessly: Access multiple bank accounts, check balances, view transaction histories, and manage finances—all through one platform, making it ideal for small businesses and entrepreneurs.


  • Easy Fund Transfers: Conduct secure transfers using IMPS, NEFT, or RTGS across different banking networks, enhancing financial connectivity.


  • Simplified Bill Payments and Recharges: Pay utility bills or recharge your mobile directly from your bank account in one easy interface.


2. Access to Lending and Credit Services


ONDC simplifies borrowing by offering access to a range of lending and credit options, making it easier for individuals and small businesses to secure funding.


  • Small Business Loans: Streamlined application process for business loans, including working capital and expansion needs, with quick disbursement of funds.


  • Microloans for All: ONDC’s network supports access to microloans, perfect for entrepreneurs and small businesses needing smaller amounts of capital.


  • Credit Scoring and Evaluation: Get access to credit scores and reports, and use evaluation tools to improve your score and secure better loan terms.


 

A Brief Guide On How ONDC Lending Works


What is ONDC and how does ONDC work?

Digital lending in India is at a transformative stage, rapidly gaining momentum alongside traditional lending practices. While it may still be in its early days compared to conventional methods, digital lending is growing at an incredible pace and is set to reshape the financial landscape.


Between FY17 and FY20, digital disbursements grew over 12 times, underscoring the increasing appetite for online borrowing solutions. Between FY17 and FY20, digital disbursements grew over 12 times, underscoring the increasing appetite for online borrowing solutions.


According to a report (Source:EY) Projections for the digital lending sector show an impressive upward trend and :

It is estimated that by FY26, total digital disbursements could exceed INR 47.4 lakh crore

This figure was around 21.6 lakh crore in FY22 which further reflects a robust Compound Annual Growth Rate (CAGR) of 22%.


This remarkable growth is where the Open Network for Digital Commerce (ONDC) comes into play, offering an innovative platform that can accelerate the adoption of digital lending in India. ONDC is opening up new avenues for financial services, especially lending, by creating an interconnected ecosystem where buyers, sellers, fintech companies, and lenders can seamlessly interact.


 

How ONDC Lending Works For Borrowers & Lenders?

What is ONDC India and how does ONDC work? How does ONDC  Lending Platform work?

Step 1: Onboarding Lenders and Borrowers to the ONDC Network


The first step in ONDC lending involves bringing both lenders (like banks, NBFCs, and fintech companies) and potential borrowers (such as MSMEs, individual consumers, and small businesses) onto the platform. ONDC creates a level playing field where various players in the digital ecosystem can connect, ensuring that lending opportunities are accessible to everyone.


a. Lender Onboarding: Lenders looking to tap into ONDC’s vast network must integrate their systems with the platform’s open protocols. This allows them to offer credit products directly within the ONDC ecosystem, reaching potential borrowers across various e-commerce channels, apps, and marketplaces.


b. Borrower Onboarding: Similarly, borrowers—whether they’re small businesses or individual consumers—join the network via ONDC-enabled platforms, such as B2B or B2C marketplaces, buyer apps, or even specialized credit marketplaces. By joining, they gain access to a range of financial services tailored to their specific needs.


Step 2: Access to Diverse Borrower Segments and New Lending Channels


Once onboarded, lenders on the ONDC platform can access a wide variety of borrower segments that were previously difficult to reach. This includes MSMEs, retailers, buyers of both B2B and B2C products, and even tech startups. This diversity allows lenders to expand their market and offer lending products tailored to the unique needs of these different segments.


a. New Channels for Offering Credit: ONDC opens up multiple new channels for offering credit, such as credit marketplaces, invoice financing apps, and buyer apps integrated with the network. By leveraging these channels, lenders can connect directly with businesses and consumers looking for loans, credit lines, or other financial products.


b. Customized Product Offerings: Because of the diverse range of borrowers on the platform, lenders can offer a variety of lending products, from short-term business loans and lines of credit to personal loans and inventory financing. This flexibility allows lenders to cater to specific financial needs, making the lending process more targeted and effective.


Step 3: Using ONDC’s Rich Data for Improved Credit Underwriting


One of the standout features of the ONDC platform is its ability to provide rich, actionable data to lenders. With access to a wealth of information about each participant’s transaction history, sales data, and financial behavior, lenders can make more informed decisions about a borrower’s creditworthiness.


a. Data-Driven Risk Assessment: For example, if an MSME applies for a loan via an ONDC-enabled B2B platform, the lender can access real-time data about the business’s sales performance, cash flow, and transaction patterns. This data allows for a more accurate assessment of risk, reducing the chances of defaults and ensuring that loans are extended to credible borrowers.


b. Enhanced Credit Scoring Models: Lenders can also leverage data to develop enhanced credit scoring models that go beyond traditional credit reports. By integrating non-traditional data points—such as online sales volume, payment history, and even customer reviews—lenders can create a more comprehensive view of a borrower’s financial health.


Step 4: Streamlining the Loan Application and Approval Process


ONDC doesn’t just make it easier to find potential borrowers; it also simplifies the entire loan application and approval process. By leveraging data and technology, the platform can automate many aspects of lending, making it faster and more efficient.


a. Simplified Application Forms: With ONDC, lenders can use borrower data to pre-fill loan application forms, reducing the time and effort required to apply for credit. Details such as the borrower’s name, PAN, and business information can be automatically populated, creating a smoother user experience.


b. Faster Approval and Disbursement: Thanks to the seamless integration of data and automation tools, lenders can significantly speed up the loan approval process. Real-time data analysis enables quicker decision-making, while digital document verification and e-signatures make disbursements faster and more secure.


Step 5: Personalized Borrower Engagement and Relationship Management


In the competitive lending market, personalized customer service is key to building strong, lasting relationships. ONDC provides lenders with tools and data to enhance borrower engagement, from personalized communication to targeted marketing.


a. Tailored Communication Strategies: With access to detailed borrower profiles and data, lenders can craft personalized communication strategies for collections, cross-selling, and upselling. This could involve sending customized reminders for loan repayments or offering tailored products based on a borrower’s financial behavior and needs.


b. Data-Driven Customer Insights: By analyzing borrower data, lenders can gain deeper insights into customer behavior and preferences, allowing them to provide more relevant offers and services. For example, if a borrower regularly pays off their loans early, they might be targeted with offers for larger credit lines or more flexible repayment terms.


Step 6: Continuous Improvement Through Feedback and Data Analysis


The final step in how ONDC lending works is continuous improvement. The platform encourages feedback loops and data analysis to optimize the lending process and better serve both lenders and borrowers.


a. Gathering Borrower Feedback: Lenders can use the ONDC platform to collect feedback from borrowers about their experience, loan products, and customer service. This feedback is crucial for refining the lending process and addressing any gaps.


b. Leveraging Analytics for Strategy Development: By analyzing data from successful and unsuccessful loans, lenders can identify patterns and trends that can inform future strategies. Whether it’s tweaking interest rates, adjusting credit criteria, or developing new products, continuous data analysis helps lenders stay agile and responsive to market needs.


 

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