UPI, Aadhaar banking drive 61% of MSME transactions; AI adoption rises: Report
New Delhi, June 23
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.
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 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.
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."
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.
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.
— ANI
Reader Comments
Great progress! As a small business owner in Bengaluru, I've seen firsthand how Aadhaar banking makes it easier for daily wage workers to withdraw money without visiting banks. But the report's 26% unsure about AI features is concerning—many MSMEs need proper training, not just tools. Government should partner with PayNearby for skilling workshops. 🇮🇳💪
The 41% income increase stat is impressive but remember this is self-reported data from PayNearby's network. Skeptical about how representative it is of the whole MSME sector. Still, UPI has made life easier for my vegetable vendor uncle—he doesn't have to give change anymore! 😄
Interesting to see India's MSMEs leapfrogging into AI. In the US, small businesses took years to adopt such tools. The 71% using AI for business ops is surprising—are we talking about ChatGPT for customer queries or something more? Either way, the 26% uncertain figure shows we need simpler, vernacular AI solutions for last-mile retailers.
Good to see Digital Naaris being included in the survey—women entrepreneurs are often forgotten in such reports. However, cash withdrawal at 51% shows rural areas still rely heavily on physical currency. The report should explore why digital payment adoption isn't higher despite all the buzz. Still, progress is progress! 🌟
As an American who's visited Indian villages, the
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