MSMEs Moving Beyond Digital Adoption To Digital Confidence
India’s micro, small and medium enterprises (MSMEs) are moving from digital adoption to digital confidence. The fourth edition of the MSME Digital Index Report 2026, released today by PayNearby, Bharat’s leading branchless banking and digital financial services network, reveals that digital tools are no longer just an add-on for small retailers and micro-entrepreneurs. UPI and Aadhaar banking account for 61 per cent of transactions at semi-urban and rural MSME retail stores.
The report shows that 87 per cent respondents feel more confident using digital tools than last year, while 82 per cent say they are confident using digital tools for day-to-day business activities. This shift is also visible in transaction behaviour, with 80 per cent of respondents reporting an increase in digital payment usage at their stores over the last year.
Commenting on the findings, Anand Kumar Bajaj, Founder, MD & CEO, PayNearby, says, “The MSME Digital Index 2026 highlights how Bharat’s small businesses are moving beyond digital adoption to digital confidence. Retailers are increasingly leveraging technology not just for payments, but to build trust, improve customer experience and drive business growth. At PayNearby, our focus remains on making technology simple, accessible and relevant for the last mile. As confidence in digital tools grows, neighbourhood retailers will play an even greater role in expanding access to banking, credit, insurance, commerce, government services and other essential services across Bharat.”
AI is emerging as an area of curiosity at the last mile, though adoption is still early. The survey found that 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. At the same time, 26 per cent are unsure which AI features would help their business most. This shows that awareness of AI is higher than clarity on use cases, and adoption will depend on simple design, clear benefits, local language support and human assistance when needed. Together, these findings indicate that MSMEs are moving beyond first-time adoption towards more regular and confident use of digital platforms.
The MSME Digital Index 2026 captures digital adoption, payment behaviour, business impact, customer assistance patterns, trust barriers, AI readiness, training needs and future service aspirations among retailers and Digital Naaris across PayNearby’s network. The survey was conducted among 10,000 retailers and MSMEs, including kirana stores, customer service points, mobile recharge outlets, digital service providers and other neighbourhood businesses.
Digital payments continue to gain momentum at the last mile, but Bharat’s transaction economy remains hybrid. While cash continues to be the single largest dominant customer transaction mode at 37 per cent, Aadhaar banking and UPI together account for 61 per cent of the reported dominant transaction mix. This highlights a shift not just from cash to digital, but towards a cash-assisted, account-linked and digitally enabled ecosystem where local retailers continue to support customers across multiple transaction modes.
This hybrid behaviour is also reflected in the services retailers use most for business. 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 findings highlight the continued relevance of assisted banking and digital services at the last mile, with retailers serving as trusted access points for customers seeking support with everyday financial and digital needs.
The business impact of digital tools is also becoming more visible. Around 41 per cent respondents said digital tools have helped increase income, while 37 per cent said they helped bring more customers. Faster service, improved customer trust, increased sales and the ability to offer more services were also cited as key benefits. Importantly, 92 per cent respondents said digital tools have helped them support family needs or make better business decisions, indicating that digitalisation is influencing how small retailers manage both their business and day-to-day financial responsibilities.
As retailers become more digitally confident, their role in the local ecosystem is also changing. Around 81 per cent of respondents help customers understand or use digital services. This shows that even as customers become more comfortable with digital tools, local support and handholding still matters. Retailers are moving from being only transaction points to digital guides who help customers use services with trust and familiarity.
This shift is not replacing the retailer’s role but strengthening it. When customers use digital services on their own, 43 per cent respondents say it builds trust in their shop, while 17 per cent say customers still seek their guidance. This reflects a behavioural shift where self-service and retailer-assisted services are growing together, strengthening neighbourhood retailers as trusted local access points.
