Investment Banking

ONDC: Disrupter or enabler of the current digital ecosystem?

May 2023

Read Time: 5 minutes

A recent article about the cost of food items when ordered on Swiggy/Zomato versus the ONDC buyer app sparked quite a debate on the future of marketplaces and the ONDC platform’s role in democratizing digital commerce, equating it with UPI’s role in payments. As in the case of any new initiative, people have taken extreme stances on both sides of the spectrum. In such situations, it makes sense to evaluate the feasibility of ONDC’s success via a framework defined by the consumer purchase process.

There are 4 steps to a retail purchase process: discovery, purchase, execution and dispute redressal (including return). The success of any marketplace, be it a shop, retail mall or internet marketplace (retail/food/travel/B2B) relies on the consumer experience through these four phases and the establishment’s ability to deliver this experience at reasonable profitability over a sustainable period.


Marketplaces offer discovery through data analytics, ratings, inducements, and promotions. They feed on the network effect. Established marketplaces have established feedback loops and hence a very rich rating history, which helps a consumer make a choice when the seller is an unfamiliar brand. However, some B2C seller side platforms can also offer a good rating system. While it is easier to offer discounts on marketplaces, seller side applications can provide promotions and discounts (to some extent) to promote certain establishments on the ONDC platform. However, the ONDC platform works best when the consumer is sure of the establishment she plans to order from.


Online purchases include browsing through the product catalogue, selection, filling the cart and successful payment. Online consumers are so accustomed to the quality of online catalogues as well as the browsing and purchase experience that they take it for granted. Shops on the ONDC seller platforms must ensure they maintain the same quality standards as marketplaces. They might need help from seller platforms on this aspect, and there could be an inherent cost to ensure smooth execution. At some point, this cost will be passed on to the consumer. The payment experience seems to be smooth across all categories these days. So, UX will be the key differentiator.


ONDC largely differs from UPI on this parameter because UPI is an entirely electronic transfer experience of a commodity that does not have any physical attributes. For physical delivery of goods, integration of logistics providers and delivery of high SLAs are very critical factors. Marketplaces have achieved optimal logistics cost per order due to scale and that advantage may not be available to sellers selling on ONDC. Logistics marketplaces are solving this aggregation problem for D2C businesses, emerging as another type of marketplace themselves. For neighbourhood establishments, having their own last mile logistics or tie-ups with reliable, quick delivery services would ensure a better consumer experience.


Many marketplaces follow a ‘consumer comes first’ doctrine and hence they address grievances quickly. For ONDC, when there are multiple players involved in a transaction, it is quite likely to be an iterative process before the model is perfected. It would need to bear the risk of losing consumers in this evolutionary phase because the premium consumer is more likely to happily shell out more for a good service than waste time on a broken experience.

ONDC is not a government owned marketplace, even though its highly promoted by it. It is a platform that has enabled buyer side apps and seller side apps to integrate with consumers on one side and sellers on the other. ONDC will make sure that the buyer side app with millions of consumers does not wield unnecessary power due to its access to customers. Otherwise, it will defeat its own purpose.

For adoption, either ONDC or buyer/seller side apps will provide various incentives. However, the optimized unit economics of discovery and delivery are already at the most efficient levels. This is especially true in the case of low-ticket items, where margins are already wafer thin. The ONDC channel may not be able to offer a significant cost advantage in low ticket items. However, for large ticket items, where the percentage margin shared with the marketplace becomes much higher compared to the ‘cost+minimal margin’ that the seller is willing to pay, the balance tilts towards ONDC.

Aware of the threat to business, established marketplaces will make sure that seller commissions are at optimal levels so that sellers do not move away from the marketplace while ensuring that they do not lose money just to keep them around. The bigger risk is to the marketplaces that provide a commoditized service/good that does not provide any differentiation (e.g. metered taxi, airline seats, loans, motor insurance) and is easy to deliver. In the medium term, one cannot ignore how ONDC will fundamentally change the behaviour of the participants, bring in efficiency and deliver benefits to the consumer. In doing that, it will give a tremendous push to the digitization of commerce.

(This article was first published by Moneycontrol)

Author: Pankaj Naik, Managing Director and Co-Head, Digital & Technology Investment Banking, Avendus Capital

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