Digital tools are gaining traction among India's MSMEs, with UPI and Aadhaar-enabled banking accounting for 61 per cent of transactions at semi-urban and rural MSME retail stores, while 71 per cent of retailers use AI tools to improve daily business operations, according to PayNearby's MSME Digital Index Report 2026.
Growing Confidence in Digital Tools
According to the report, 87 per cent of respondents feel more confident using digital tools than last year, while 82 per cent are comfortable using them for daily business activities. The shift is reflected in payment behaviour, with 80 per cent reporting increased digital payment usage at their stores over the past year.
AI Adoption Among MSMEs
AI is also emerging as an area of interest among last-mile MSMEs, though adoption remains at an early stage. As per the survey, "90 per cent of respondents have heard of AI in some form, while 71 per cent have used AI tools to automate and improve business operations." However, 26 per cent remain unsure about which AI features could best support their businesses. "Together, these findings indicate that MSMEs are moving beyond first-time adoption towards more regular and confident use of digital platforms," the report added.
Transaction Mix: Cash vs Digital
While digital payments continue to gain traction at the last mile, India's transaction ecosystem remains a mix of cash and digital modes. "While cash continues to be the single largest dominant customer transaction mode at 37%, Aadhaar banking and UPI together account for 61% of the reported dominant transaction mix," the report said. As per the report, "cash withdrawal emerged as the leading service at 51 per cent, followed by Aadhaar banking at 22 per cent and UPI at 12 per cent."
Business Impact of Digital Adoption
The report further added that "41 per cent respondents said digital tools have helped increase income, while 37 per cent said they helped bring more customers." Moreover, this shift is strengthening retailers' role in the MSME sphere.
Survey Coverage and Methodology
The MSME Digital Index 2026 tracks digital adoption, payment trends, business impact, customer support practices, trust barriers, AI readiness, training needs and future service expectations among retailers and Digital Naaris in PayNearby's network. The survey covered 10,000 retailers and MSMEs, including kirana stores, customer service points, mobile recharge outlets, digital service providers and other neighbourhood businesses.
