UPI, Aadhaar banking drive 61% of MSME transactions; AI adoption rises: Report

Digital adoption among Indian MSMEs is rising, with UPI and Aadhaar-linked banking making up 61% of transactions at semi‑urban and rural retail outlets, and 71% of shop owners employing AI solutions to streamline everyday tasks, per PayNearby’s MSME Digital Index Report 2026.

The survey shows that 87% of participants feel more assured using digital tools compared with the previous year, and 82% are comfortable applying them in routine business functions. This change appears in payment habits, where 80% noted a rise in digital payments at their shops over the last twelve months.

Interest in AI is growing among last‑mile MSMEs, although uptake is still nascent. According to the survey, “90% of respondents have encountered AI in some capacity, while 71% have deployed AI tools to automate and enhance operations.” Yet 26% are uncertain about which AI capabilities would most benefit their enterprises. “These results suggest that MSMEs are progressing from initial trial to steadier, more confident engagement with digital platforms,” the report notes.

Although digital payments keep gaining ground at the grassroots level, India’s transaction landscape still blends cash and electronic methods. “Cash remains the predominant mode of customer transactions at 37%, while Aadhaar banking and UPI together constitute 61% of the dominant transaction mix,” the report states.

The report also highlights that “cash withdrawal topped the list of services at 51%, with Aadhaar banking at 22% and UPI at 12%.”

Furthermore, “41% of respondents credited digital tools for boosting their income, and 37% said the tools helped attract additional customers.” This evolution is reinforcing the position of retailers within the MSME ecosystem.

The MSME Digital Index 2026 monitors digital adoption, payment trends, business impact, customer‑support practices, trust obstacles, AI preparedness, training requirements, and future service expectations among retailers and Digital Naaris within PayNearby’s network. The study encompassed 10,000 retailers and MSMEs, ranging from kirana shops and service counters to mobile‑recharge kiosks, digital service providers, and other local enterprises.

Published on June 23, 2026