ONDC's E-commerce Dreams in Jeopardy: Poor UX, Exits, and Fading Incentives Threaten Momentum

ONDC, India's e-commerce disruptor, has yet to click despite government backing and its promise of decentralizing online commerce. Poor user experience, key player exits, and fading incentives threaten its momentum. Launched in 2021, ONDC aimed to empower small sellers and reduce platform dependency, but its performance has been underwhelming with a drop in retail orders and a shift towards mobility.

India's e-commerce disruptor, Open Network for Digital Commerce (ONDC), has yet to live up to its promise despite substantial government backing and a vision to decentralize online commerce. Launched in December 2021, ONDC aimed to empower small sellers and reduce platform dependency by offering a public infrastructure project similar to the Unified Payments Interface (UPI) for payments. However, the project has faced significant challenges, including poor user experience, key player exits, and fading incentives, which threaten its momentum.

ONDC's initial promise was to democratize digital commerce by connecting buyer-side apps, seller-side apps, and logistics providers on a single interoperable network. By offering near-zero platform fees and abandoning preferential listing schemes, ONDC hoped to level the playing field for India's small merchants. Early signs were promising, with a modest pilot in five cities scaling quickly to over 600 cities and six lakh merchants. Orders surged, especially in tier-2 and tier-3 cities, which now account for 70 percent of traffic [1].

However, by early 2025, ONDC's performance has been underwhelming. 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 percent to just 29 percent. Meanwhile, mobility soared, riding on the backs of apps like Namma Yatri and Ola. Simpler workflows, including no inventories, no returns, and no refunds, meant mobility now drives 56 percent of ONDC's volume. Even logistics is growing, but retail seems to be lagging behind [1].

The primary reason for the underperformance of retail services on ONDC is the complexity involved. Unlike booking a ride or ordering food, which involves fewer steps, ordering a product involves a long chain of points, including inventory updates, UI 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. 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. With reduced incentives to sugarcoat that rough experience, users have begun to drift away [1].

ONDC's cut in incentives also played a significant role in breaking the momentum. By late 2024, ONDC slashed incentives from ₹2.5 crore per app to ₹30 lakh. The discounts vanished almost overnight. Key players like Magicpin, Paytm, Ola Consumer, and PhonePe 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 has also quietly removed ONDC's shopping icon from its app, pulling back from the retail push [1].

ONDC's creators often compare it to UPI. Both were built by non-profit entities with government backing and aim to democratize digital infrastructure. However, while UPI became a runaway success, ONDC is yet to find its footing. 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, each with its own logistics, pricing, and fulfillment headaches. UPI scaled for nearly eight years before introducing any fees, while ONDC began tightening its purse strings barely two years in. That has tightened growth just when network effects were beginning to take hold. 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 [1].

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 decentralized 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 [1].

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 [1].

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. It has already changed how government, startups, and large platforms think about interoperability. However, it faces the growing pains of ambition. The project has already changed how government, startups, and large platforms think about interoperability. More From This Section Akums secures patent for dual-action nausea drug for pregnant women Shoemaker Skechers to be acquired for $9 billion, taken pvt by 3G Capital AI adoption still in early stages for most global enterprises: Accenture SC in BPSL case: NCLT, NCLAT have no jurisdiction to review PMLA order Adani Power's outstanding on Bangladesh stands at around $900 mn: CFO Topics : BS Web Reports India ecommerce market Indian ecommerce ecommerce firms ecommerce

References:
[1] https://www.business-standard.com/companies/news/ondc-ecommerce-failure-struggles-india-125050501101_1.html