ONDC & OCEN: Powering the Future of Embedded Finance in India

India's digital public infrastructure is undergoing a profound transformation. Beyond the revolutionary UPI and Account Aggregator frameworks, two more acronyms are reshaping how commerce and credit function: ONDC and OCEN. Together, they promise to democratize access and embed financial services deeper into our digital lives.

Accessing credit, especially for India's millions of Micro, Small, and Medium Enterprises (MSMEs), has long been a challenge. Similarly, digital commerce, while growing rapidly, remained dominated by large platforms. ONDC (Open Network for Digital Commerce) and OCEN (Open Credit Enablement Network) are designed to tackle these issues head-on, creating open, interoperable networks.

ONDC: More Than Just Shopping Carts

Often described as the "UPI for e-commerce," ONDC is an open protocol, not a platform. It aims to unbundle the components of e-commerce, allowing buyers and sellers on different applications to transact seamlessly. While initially focused on retail goods and food delivery, ONDC's vision extends significantly into services, including **Financial Services**.

Within the ONDC network, Financial Institutions (FIs) like banks, NBFCs, and insurers can act as 'Seller Applications'. They list their products (loans, insurance policies, mutual fund units) which can then be discovered by users through various 'Buyer Applications' (like fintech apps, e-commerce platforms, or even bank apps participating as buyers). This creates an open marketplace for financial products, breaking down distribution barriers and potentially lowering costs for both providers and consumers. Imagine discovering and comparing loan offers from multiple lenders directly within the app you use to manage your business inventory!

Fig 1: ONDC and ONCE connect siloed financial service providers with a single unified language: Beckn protocol

OCEN: The Open Rails for Credit

While ONDC facilitates discovery and access, OCEN provides the standardized infrastructure specifically for **lending**. It's a set of open APIs (Application Programming Interfaces) defining a common language for various players in the lending ecosystem to interact efficiently.

The core problem OCEN addresses is the high cost and complexity associated with originating, underwriting, and servicing small-ticket loans, which historically excluded many MSMEs and individuals from formal credit. OCEN enables **embedded credit** – offering loans contextually within platforms users already trust and use.

Key OCEN Participants:

• Lender: The entity providing the capital (Banks, NBFCs).
• Loan Service Provider (LSP): The borrower-facing platform (e.g., an e-commerce marketplace, accounting software, fintech app) that integrates OCEN APIs to facilitate loan origination, application, and potentially servicing.
• Technology Service Provider (TSP): Provides the technical infrastructure and gateway for OCEN APIs.
• Borrower: The individual or MSME seeking credit through an LSP's platform.

The OCEN Flow (Simplified):

Imagine an MSME needing a short-term loan for inventory on their supplier platform (acting as an LSP):

1. MSME requests a loan directly within the supplier platform's interface.
2. The LSP platform uses OCEN APIs to securely fetch tailored loan offers from multiple connected Lenders, potentially using platform data and AA-consented financial data for instant assessment.
3. The MSME reviews and accepts a suitable loan offer, providing necessary digital consent.
4. The LSP facilitates the remaining process (e-documentation, automated underwriting checks) via OCEN APIs with the chosen Lender.
5. The loan amount is disbursed quickly, often directly linked to the purchase or need.

Fig 2: Simplified OCEN Loan Flow

The Power Trio: ONDC + OCEN + AA

The true magic happens when these frameworks collaborate. ONDC acts as the discovery layer, helping borrowers and lenders (or financial product sellers) find each other across various platforms. OCEN provides the standardized rails to efficiently execute credit transactions identified through ONDC or other platforms. And the Account Aggregator (AA) framework provides the secure, consented data pipeline needed for quick, accurate underwriting within the OCEN flow.

This synergy enables scenarios like: A small retailer discovered via ONDC applies for working capital through the seller app they use (LSP). The LSP leverages OCEN to get instant loan offers. The underwriting is powered by consented data shared via AA (like bank statements and GST returns), leading to near-instant loan disbursal. This seamless integration forms a powerful backbone for accessible, data-driven finance.

Use Cases and Benefits: Transforming Finance

The combined impact of ONDC and OCEN is unlocking numerous possibilities:

• Embedded MSME Lending: Working capital loans, invoice discounting, purchase financing offered directly on B2B platforms, accounting software, or seller apps.
• Sachetized Consumer Loans: Small-ticket personal loans offered contextually during online checkouts or via various consumer apps.
• Insurance Distribution: Discovery and purchase of micro-insurance products (health, motor, marine) facilitated via ONDC participating apps.
• Micro-Investments: Potential for offering simplified investment products (like liquid funds) through consumer-facing apps on the network.

The benefits are substantial: drastically reduced loan processing times and costs, increased access to formal credit for underserved segments (especially MSMEs), competitive pricing through open market discovery, greater convenience for users, and new revenue opportunities for platforms and lenders.

Fig 3: Empowering MSMEs with accessible credit

Challenges and the Exciting Road Ahead

While incredibly promising, the widespread adoption of ONDC for financial services and OCEN faces hurdles. These include building awareness among potential borrowers and lenders, encouraging participation from established financial institutions, ensuring robust technological integration across diverse platforms, and navigating evolving regulatory nuances. Data privacy and security, though addressed by design (especially with AA), remain critical for building user trust.

However, the momentum is strong. Pilots are expanding, more participants are joining, and use cases are diversifying beyond simple credit. The potential integration with upcoming frameworks like the Unified Lending Interface (ULI) could further streamline the process. ONDC and OCEN are not just technological upgrades; they represent a fundamental shift towards a more open, inclusive, and efficient financial ecosystem in India.

Conclusion

ONDC and OCEN are pivotal components of India's digital public infrastructure, poised to revolutionize how financial services, particularly credit, are discovered, accessed, and delivered. By fostering interoperability, enabling embedded finance, and working synergistically with the Account Aggregator framework, they are paving the way for greater financial inclusion and empowering millions of individuals and MSMEs across the country. The journey is underway, and the future of finance in India looks increasingly open and accessible.