The Open Network for Digital Commerce (ONDC) is once again transforming the digital marketplace in India through its decentralized form which allows both buyers and sellers to interface with each other, not limited to one marketplace. Although ONDC makes e-commerce more democratic and provides more opportunities to make profits in business and as a consumer, it brings new complications to banks and financial institutions that will have to handle transactions on the platform.

Fraud-free, enjoyable experiences characterized by transparency and security are essential to sustaining the flow of trust and heightening ONDC adoption. The case of banks implies designing effective risk management strategies that ensure the protection of both a seller and a buyer and the facilitation of uninterrupted financial flows.

So, in this blog, we are going to discuss the most significant risks linked with ONDC transactions and overview effective measures banks can utilize to mitigate those risks.

The Risk Landscape in ONDC Transactions

In contrast to the conventional-looking e-commerce systems, ONDC is interoperable and open, which exposes this industry to the varied risk of transactions. These are some of the serious risks:

    1. Fraudulent Transactions

    • Fake sellers listing non-existent products.
    • Buyers using stolen payment credentials.

    2. Dispute Resolution Challenges

    • Product quality mismatches.
    • Non-delivery of goods or services.

    3. Data Privacy Concerns

    • Leakage of sensitive buyer or seller information.
    • Unauthorized use of transaction data.

    4. Payment Failures & Chargebacks

    • Failed settlement between banks and sellers.
    • Disputes over refunds and reversals.

    5. Compliance & Regulatory Risks

    • Adherence to RBI’s digital payments guidelines.
    • Ensuring KYC/AML norms for both buyers and sellers.

As ONDC financial infrastructure, banks need to plan and mitigate such risks, which should be a blend of technology, compliance, and operational excellence.

Risk Management Strategies for Banks on ONDC

1. Improving Online Confirmation of Identity

It requires a sound KYC (Know Your Customer) and AML (Anti-Money Laundering) system. Banks are capable of introducing:

  • Seller onboarding with AI-based identity verification.
  • Multi-factor security and biometric authentication on the part of the buyers.
  • Suspicious transactions should be monitored continuously in order to raise anomalies.

This makes sure that only legitimate participants will work on ONDC, minimising the risks of fraud.

2. The use of Real-Time Fraud Detection Systems

Banks should invest in AI- and machine-learning-based fraud detection engines that examine transaction patterns on a real-time basis. Such systems have the ability:

  • Identify abnormal buying patterns.
  • Spot risky sellers / buyers.
  • Stop suspicious activity authorization of payments.

Preventing an incident of fraud will help the banks to lose as little money as possible, reducing losses and protecting user confidence.

3. Secure Payment Gateways & Tokenization

ONDC transactions cannot be limited to a single bank since funds are spread across payment providers, therefore, it is necessary to secure payment gateways. The following are risk reduction measures:

  • Card and payment data are tokenized in order to block misuse.
  • Transaction processing via end-to-end encryption.
  • Use of escrow-type settlements and UPI AutoPay that would facilitate safer release of disbursements.

This instills transparency and secures confidential financial data.

4. Buyer Protection Mechanisms including Escrow

A core headache during digital commerce is buyer-seller trust. Banks can respond as follows to this:

  • Provision of escrow services such that payment is not released when the products are yet to be delivered.
  • Buyer protection policies that give refunds in case of disagreement or fraud.
  • Sellers to be issued with guarantees on settlement.

Such systems lower conflicts and promote fair play to both sides.

5. Collaborative Risk Governance

Banks should adopt a collaborative governance model as ONDC is supplied by a variety of stakeholders, including buyers, sellers, logic providers, and payment intermediaries. This includes:

  • Information-sharing of fraud information among financial companies.
  • Liaising with ONDC participants to work towards a common system of dispute resolution.
  • Aligning with regulators to remain in pace with changing compliance needs.

This will enhance the security position of the whole network.

6. Advanced Analytics Risk Modeling

The predictive analytics will allow banks to shift toward preventive risk management instead of focusing on the reactive approach. By analyzing:

  • Transaction history analysis.
  • Seller achievement indicators.
  • Patterns of buyer behavior.

Banks are able to pro-actively block fraudulent activity and enhance surveillance at scale.

7. Customer Education / Awareness

Risk management extends beyond the issues of technology and compliance and needs empowered customers. Banks should:

  • Train buyers on safe payments.
  • Educate traders on fraud and safe transactions.
  • Provide pathways for suspicious activity reporting.

An informed ecosystem is safe and inculcates trust.

Future Prospect of Banks in ONDC

Banks will be an important part of making sure that financial transactions are safe as ONDC spreads nationwide in India. Through a mix of advanced technology, regulation, and business models, they can establish a secure platform in which traders deal with each other appropriately.

The open infrastructure alone is unlikely to ensure the future of ONDC and therefore the effectiveness of risk management by banks in safeguarding all their participants must be taken seriously. The organizations that are focused on customer trust, transparency, and security consequently will become the main drivers of the digital commerce revolution in India.

Final Thoughts

ONDC is a paradigm change in the concept of online business, and along with innovation comes responsibility. Banks must adopt holistic risk management strategies that go beyond compliance, focusing on trust, security, and resilience. When brought on board, they can make ONDC a vibrant, safe, and inclusive ecosystem to all stakeholders.