The ONDC puzzle: Why India's e-commerce disruptor isn't clicking yet

Backed by the govt and billed as the UPI of commerce, ONDC promised disruption-but poor UX, exits, and fading incentives now threaten its momentum

Launched with the ambition to ‘democratise’ digital commerce, Open Network for Digital Commerce (ONDC) was meant to be India’s answer to e-commerce platform monopolies. It was designed as a public infrastructure project aiming to replicate what UPI did for payments. Backed by major public institutions and designed to empower small sellers and reduce platform dependency, it held the promise of rewriting the rules of online trade.

 

But two years on, cracks are appearing. With key players exiting and user experience still remaining underwhelming, can ONDC still deliver on its bold vision, or is India’s open commerce dream losing steam?

 

 

What is ONDC, and how was it supposed to revolutionise e-commerce?

 

Launched in December 2021, ONDC aimed to decentralise online commerce, even the playing field of algorithms, and let buyers and sellers transact freely, regardless of the apps they use.

 

Unlike conventional marketplaces that put together discovery, logistics, payments, and customer service under one brand, ONDC segregates the value chain. It connects three distinct players including buyer-side apps (like Paytm), seller-side apps (like Magicpin), and logistics providers (like LoadShare) on a single interoperable network. Sellers list once and show up everywhere.

 

By offering near-zero platform fees (compared to Amazon/Flipkart’s 25–40 per cent), and abandoning preferential listing schemes, ONDC hoped to level the playing field for India’s small merchants, a promise nothing short of a digital retail revolution.

 

How is ONDC performing in 2025?

 

The early signs were promising. A modest pilot in five cities in August 2022 scaled quickly to over 600 cities and six lakh merchants. Orders surged, especially in tier-2 and tier-3 cities, which now account for 70 per cent of traffic.

 

But by early 2025, the plot has taken a twist. Retail orders, spanning food, groceries and fashion, dropped from 6.5 million in October 2024 to 4.6 million in February 2025. Retail’s share of total transactions collapsed from 47 per cent to just 29 per cent.

 

Meanwhile, mobility soared, riding on the backs of apps like Namma Yatri and Ola. Simpler workflows including no inventories, no returns, no refunds, meant mobility now drives 56 per cent of ONDC’s volume. Even logistics is growing. But retail seems to be lagging behind.

 

Why are retail services on ONDC failing to scale?

 

Unlike booking a ride, ordering food or a product involves a long chain of points, including inventory updates, UI (user interface) smoothness, order cancellations, refunds, support tickets, packaging, and post-sale service. Platforms like Zomato, Swiggy, Amazon and Flipkart have perfected these systems over years with billions in venture capital.

 

Meanwhile, ONDC’s plug-and-play model just hasn’t matched up. Multiple surveys show that more than half of ONDC users find the UI clunky, while nearly a third report poor customer service. And with reduced incentives to sugarcoat that rough experience, users have begun to drift away.

 

Did the cut in ONDC incentives break the momentum?

 

ONDC was never meant to burn cash like private players. It’s backed by public sector banks like SBI, ICICI and NABARD among others, entities with a duty to spend prudently. By late 2024, ONDC slashed incentives from ₹2.5 crore per app to ₹30 lakh. The discounts vanished almost overnight.

 

That’s when the cracks widened. Magicpin, Paytm, Ola Consumer and others had been using those incentives to lure users with steep discounts. Once subsidies dried up, neither price advantage nor service quality remained.

 

Even PhonePe’s Pincode, once seen as a flagship ONDC partner in grocery delivery, exited the network in 2024. It now runs its own 15-minute service via direct retail tie-ups. Paytm, too, has quietly removed ONDC’s shopping icon from its app, pulling back from the retail push.

 

Last week, reports emerged that National Restaurants Association of India (NRAI) has paused onboarding restaurants to ONDC in favour of Rapido. However, both parties denied the report.

 

Why hasn’t ONDC replicated UPI’s success story?

 

ONDC’s creators often compare it to UPI. Both were built by non-profit entities with government backing and aim to democratise digital infrastructure. But while UPI became a runaway success, ONDC is yet to find its footing. Why?

 

A Jefferies report explained that UPI offered a single, universal product that fixed a clear pain point: clunky digital payments. E-commerce, on the other hand, has millions of SKUs (Stock Keeping Units), each with its own logistics, pricing and fulfilment headaches.

 

Also, UPI scaled for nearly eight years before introducing any fees. ONDC began tightening its purse strings barely two years in. That has tightened growth just when network effects were beginning to take hold.

 

And unlike UPI, ONDC is trying to solve a problem that many consumers don’t feel exists. Zomato, Swiggy, Flipkart and Amazon already offer reliable, fast and discounted services. There’s no burning consumer pain to solve.

 

Are regulatory gaps slowing ONDC’s ability to scale?

 

ONDC’s governance and dispute resolution mechanisms remain fragmented. It relies on third-party dispute platforms and mutual coordination between buyer and seller apps to resolve complaints. This decentralised approach risks delays, malicious activity, and customer frustration, with no clear rules if a network partner defaults.

 

Meanwhile, the Digital Personal Data Protection Act (2023) doesn’t regulate damages like identity theft or financial loss, exempts government data processing, and allows data transfer outside India with vague country-wise rules. For a national commerce network built on user data, that’s a big risk.

 

Is ONDC’s leadership vacuum affecting execution?

 

Since December 2024, ONDC has seen an exodus of top brass. Chairperson R S Sharma, chief business officer Shireesh Joshi, and most recently CEO T Koshi have all resigned. While ONDC insists it remains stable, the departures have cast a shadow on its long-term clarity and strategy.

 

ONDC’s vision is undeniably bold: a public digital commons for commerce, where no single company can dominate and where India’s small sellers get a level playing field.

 

And it’s facing the growing pains of ambition. It has already changed how government, startups, and large platforms think about interoperability.