UPI, ONDC & the New Retail Railroads: How Infrastructure Is Rewiring Indian Commerce

India is building one of the world’s most powerful commerce infrastructures - a layered stack of rails that includes UPI for instant payments, ONDC for open digital commerce, FASTag for mobility, Account Aggregator for data exchange, and private-sector logistics networks built on top. For retailers, these rails are doing what highways, ports, and airports did for previous decades: they reduce friction, expand market reach, and compress the cost of growth.

Three shifts define the current moment:

Payments are now instant, zero-cost, and universal. UPI processed over 12.2 billion transactions in November 2023 and crossed 15 billion transactions in May 2024 (NPCI) - unprecedented globally. UPI has become the default tender type across small and large retail.
Discovery and selling are decoupling. ONDC is enabling a new model where retailers can sell across any buyer app without building walled-garden storefronts. As of 2024, ONDC reported over 600,000 sellers onboarded, majority being small merchants (ONDC official reports).
Commerce flow is becoming interoperable. From payments to cataloguing to delivery, India is building an architecture where any retailer can plug in and scale without proportionate investments.

Together, these shifts reshape how Indian retail will grow, who will win, and where margins will consolidate.

1. The New Retail Railroads: A Structural Shift

India’s infrastructure transformation is digital-first. Unlike the West, where retail infrastructure evolved around physical stores and card networks, India’s system is being built bottom-up around mobile, UPI, and open protocols.

UPI: India’s Financial Highway

Monthly value processed: ₹20–27 lakh crore across multiple 2024–25 months.
Zero MDR on P2P and P2M means micro-transactions are viable for small merchants.
Penetration: 300+ million active users, 50+ million merchants .

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UPI reduces friction at checkout, accelerates cash cycles, and unlocks new transaction behaviors - from impulse purchases to subscription models.

ONDC: The Open Commerce Layer

ONDC’s “unbundled marketplace” enables buyers, sellers, and logistics to transact independently via open APIs. Key metrics (2024):

600k+ sellers, majority MSMEs (ONDC Quarterly Update)
30+ buyer apps live
Average order values in early categories stabilizing as logistics partners mature

ONDC acts as a “protocol” rather than a platform - the equivalent of moving from private highways to a public grid.

2. What Is Driving Retail Adoption

(A) Cost Compression Creates Margin Space

With UPI removing MDR fees and providing instant settlement, retailers save on:

card fees
payment gateway charges
settlement delays
cash-handling risk

For high-frequency, low-ticket retail - kirana, pharmacy, QSR - this cost compression directly improves unit economics.

(B) Open Rails Reduce Platform Dependence

Marketplace commissions of 15–35% (industry averages across categories) have traditionally limited margins for emerging brands. ONDC allows retailers to “rent the rails” instead of “rent the storefront,” enabling:

Direct reach across apps
Control over pricing
Better visibility into inventory and customer data
Lower commission structures vs major marketplaces

(C) Interoperable Logistics Make Fulfilment Cheaper

Logistics APIs within ONDC allow sellers to choose delivery partners based on:

price
SLA
distance
service quality

This creates price competition within logistics - reducing the cost of last-mile delivery, a major expense in India retail.

3. The Retail Impact: What Changes for Leaders

1. Payments Become a Strategic Lever

UPI unlocks:

Faster inventory turns
Better cash-flow cycles
Reduction in working-capital burden
Unified view of consumer purchase behavior

For retailers processing millions of monthly transactions, UPI becomes a data asset, not just a payment tool.

2. Discovery Becomes Decentralized

With ONDC:

Any app can be a storefront
Merchants gain multi-channel visibility
Consumers see more competitive pricing
Retailers with strong supply chains win over those simply buying traffic

This weakens the dominance of large marketplaces and rewards operational excellence.

3. Local Retailers Become National Sellers

A kirana store in Bhopal can now be discovered by a buyer app in Bangalore. ONDC simplifies cross-region discovery, making:

hyperlocal fulfilment
regional catalogues
multi-city expansion

much easier and cheaper.

4. New Business Models Emerge

The rails create opportunities such as:

“Pay at Shelf” or “Walk-out Pay” using UPI
Multi-app presence without managing multiple storefronts
Dynamic pricing based on logistics partner competition
Subscription commerce with automatic UPI AutoPay
Hyperlocal marketplaces with decentralized seller pools

4. What Retailers Must Do Now (Action Framework)

1. Make UPI the Default Rail

Integrate both UPI QR and deep-link/intent flows
Enable UPI AutoPay for recurring baskets
Add UPI ID-based loyalty mapping to connect transactions to customers
Automate refunds via UPI for faster returns processing

2. Pilot ONDC With Focused SKU Clusters

Start with:

high-velocity, low-return SKUs (FMCG, Pet Food, Household Essentials)
simple fulfilment journeys
markets with excess demand or inventory imbalance

Measure:

cost to serve
delivery SLA improvements
per-unit fulfilment cost
price competitiveness

3. Re-architect the Supply Chain to Be ONDC-ready

Build catalogues that are API-ready
Standardize product attributes
Use multi-partner logistics to reduce per-delivery cost
Enable store-level fulfilment to serve nearby ONDC orders

4. Use Payments + Commerce Data as a Growth Engine

Combine UPI transaction data + ONDC order data to:

build demand curves
optimize pricing
run micro-campaigns by PIN code
estimate inventory stockouts before they happen

5. Strengthen Reconciliation and Compliance

With high UPI volume and multi-partner fulfilment via ONDC:

automated reconciliation
fraud checks
return-to-origin (RTO) controls

become essential for margin protection.

5. What’s Next: The 18–36 Month Horizon

1. UPI Credit Lines and Embedded Lending

UPI-linked small credit lines will create new checkout behaviors and larger basket sizes.

2. ONDC Category Expansion

Electronics, beauty, pharmacy, home goods will scale as logistics SLAs improve.

3. Regional Commerce Ecosystems

ONDC will accelerate “regional dominance” brands (e.g., South-India snacks, North-India apparel) into national visibility.

4. Convergence With Account Aggregator

AA-enabled data exchange + UPI payments + ONDC discovery = a powerful flywheel for retailer financing.

References: NPCI ONDC Press Information Bureau RBI