13 - 10 - 2026

Trust, underwriting gaps, delayed merchant settlements obstacles to digital finance adoption: Amazon Pay–Pahlé India Foundation survey

India’s digital payments revolution has made paying for everyday purchases routine. The next challenge is turning that habit into broader access to credit and other financial services—a transition that remains uneven despite the widespread use of payment apps.

A new report by Pahlé India Foundation, in collaboration with Amazon Pay, suggests that the next phase of digital finance may be shaped less by the adoption of payment technology itself and more by whether consumers trust the same platforms to lend them money, whether merchants receive payments quickly enough to manage cash flow, and whether financial products can accommodate people with irregular incomes.

The How Urban India Pays Report 2026, based on a survey of 5,149 consumers and 1,054 merchants across 100 cities in 20 states, finds that 75% of urban Indians have used at least one financial product through their primary payment app. Yet the report identifies a significant gap between access to digital financial services and their broader impact on users’ financial lives.

Its Digital Credit Inclusion Index (DCII) gives India an overall score of 55.85 out of 100, placing the country in the report’s “Emerging & Served” category. The score comprises three dimensions: access, at 61.24; adoption, at 57.17; and impact, at 49.16.

The difference matters. Consumers may have access to digital credit products and may even use them, but that does not necessarily mean those products are improving their financial resilience or meeting their needs.

For India’s fintech industry, this is the central challenge: moving from a payments-led model to one in which digital financial services deliver measurable benefits without encouraging unsuitable borrowing.

The report’s findings suggest that familiarity with payment apps does not automatically translate into confidence in borrowing through them. Consumers rated their primary payment apps 4.11 out of five for security and 3.98 for payments. Confidence fell to 3.10 when the same apps offered credit.

The trust gap behind digital credit

That decline points to a distinction between trusting a platform to transfer money and trusting it to facilitate a loan. The latter introduces questions about repayment obligations, pricing, data use and the consequences of financial distress.

The survey found that 51.5% of respondents would borrow through their primary payment app if protection against fraudulent transactions were guaranteed. Only 16.7% said they would still decline under that condition.

The finding indicates a potential role for stronger consumer protection in expanding digital credit, although it does not establish that fraud protection alone would resolve concerns about borrowing.

For lenders and payment platforms, the commercial opportunity is substantial. But converting payment users into borrowers will require more than making credit available within an existing app. Consumers need to understand the terms, trust the transaction and have a reasonable basis for believing they can repay.

The report also places this opportunity within a broader development agenda. Pahlé India Foundation Chairman Dr Rajiv Kumar said the next stage of India’s digital transformation must extend beyond payments to borrowing, saving and investing.

“Having built this foundation of trust-based efficiency at scale, India is now ready for its next leap: extending the confidence earned in payments to borrowing, saving and investing,” Kumar said.

He argued that transparent disclosure, robust cybersecurity, safety and underwriting that recognises informal incomes would be necessary to expand digital finance’s contribution to India’s development.

Why smaller cities are becoming important

One of the report’s more consequential findings is the strong performance of Tier-2 cities in digital credit adoption.

These cities recorded a DCII score of 58.64, ahead of Tier-1 cities at 53.10 and Tier-3 cities at 55.77. Tier-2 respondents also reported higher usage across every digital-credit product measured in the study.

Buy-now-pay-later (BNPL) usage stood at 60% in Tier-2 cities, while 41% reported credit applications. The report’s findings suggest that these markets should not be treated simply as later-stage extensions of metropolitan fintech adoption.

Instead, they may offer an important testing ground for products designed around different consumption patterns, purchasing needs and financial circumstances.

City-level results underline that variation. Coimbatore recorded installment financing for electronics and appliances among 70% of respondents, which the report describes as nearly ten times the national norm. Kochi followed at 45%.

Surat, Bengaluru and Chandigarh showed the strongest BNPL adoption for fashion, while Mumbai stood out for festive-season shopping through credit cards.

These differences have implications for product design and distribution. A credit product that works for a salaried metropolitan consumer making frequent online purchases may not serve the same purpose for a household financing an appliance or managing a seasonal expense in a smaller city.

The data also challenges the assumption that financial technology adoption will necessarily follow a simple progression from metropolitan centres to smaller markets. Tier-2 cities are already showing strong engagement with digital credit, giving providers a reason to develop products for these users rather than merely extend existing metropolitan offerings.

Gig workers reveal the limits of conventional underwriting

The opportunity becomes more complicated when income is irregular.

The report finds that 23% of gig workers would turn first to a digital loan app during a cash crunch—3.4 times the national rate. It also reports that 43% of gig workers believe digital credit has increased their financial independence.

At the same time, informal earners, including gig workers, daily-wage workers, homemakers, students and unemployed respondents, scored about 11 points below salaried and business respondents on the DCII.

The contrast highlights a structural problem for digital lenders. Those who may need short-term credit most urgently can also be difficult to assess using conventional measures of income stability.

A salaried applicant may be able to demonstrate regular earnings through payslips and bank statements. A gig worker’s income can fluctuate with assignments, demand and working days. The absence of a regular salary does not necessarily mean an absence of repayment capacity, but it complicates how that capacity is evaluated.

That makes underwriting central to the next phase of digital credit.

Better assessment of variable income could help providers distinguish borrowers who can manage a loan from those for whom additional debt may worsen financial pressure. Poorly designed products, by contrast, risk turning convenient access into repeated borrowing without addressing the underlying cash-flow problem.

The report’s results support the need to account for diverse income patterns, but they do not establish which underwriting models will work best. That remains an important question for lenders and regulators as digital credit expands.

Merchants want digital payments—but not delayed cash

Consumers are only one side of the digital-finance equation. Merchants also need payment systems that fit the economics of running a business.

Among merchants surveyed, 80.6% were open to digital payments, while 79.5% reported efficiency or sales gains after adopting them. Tier-3 merchants were the most enthusiastic: 66.4% described themselves as extremely open to digital payments, ahead of Metro/Tier-1 merchants at 64.3% and Tier-2 merchants at 51.7%.

Yet adoption does not eliminate operational friction. Among merchants hesitant about digital payments, 72.1% identified settlement delays as their primary concern.

For a business with limited working capital, the timing of settlement can matter as much as the convenience of accepting a digital transaction. Suppliers must be paid, stock replenished and daily expenses covered. A payment method that improves sales but leaves money unavailable when needed can create a cash-flow problem.

This is particularly relevant to smaller merchants, for whom working capital may be tightly constrained.

The findings suggest that expanding digital payments requires attention not only to consumer-facing applications and acceptance infrastructure, but also to the reliability and speed with which merchants receive funds.

That has implications for payment providers and financial institutions competing to serve smaller businesses. Improving the payment experience at the point of sale may be insufficient if merchants remain uncertain about when the proceeds will become available.

Festive spending tests the boundaries of digital credit

The survey also captures the scale of seasonal consumption.

Seventy-seven per cent of respondents said they spend at least 50% more than usual during the festive season. Of these, 46% reported spending 1.5 to two times their regular budget, while 6% said they spend more than three times as much.

Fashion and beauty led by purchase volume, with 89% of respondents reporting purchases in the category. Home and kitchen followed at 87%, and everyday groceries at 84%. Consumer electronics and home appliances accounted for the highest-value purchases.

These patterns create an opportunity for payment apps to support shopping, instalments and short-term financing during periods of elevated demand. They also raise questions about how credit is presented to consumers at the moment they are most inclined to spend.

A convenient payment option can help households manage planned expenses, but additional credit can also make it easier to exceed a budget. The report does not establish whether respondents’ higher festive spending was financed through borrowing, savings or current income. Its findings should therefore be read as evidence of seasonal spending pressure, not proof of credit-driven consumption.

For providers, the challenge is to offer relevant financing without blurring the distinction between affordability and purchasing power. The report’s findings on older consumers add another dimension to the adoption story. Some 55% of senior citizens said digital payments made them feel more confident and independent, while 49% reported that digital payments had become a regular habit over the preceding year.

That suggests digital payments can support autonomy among users who might otherwise depend on cash or assistance from others. But the findings also reinforce the importance of making digital financial services understandable and secure for people with different levels of familiarity and confidence.

The report categorises respondents into five financial personas: Planners, representing 41%; Savers, 33%; Survivors, 15%; Impulse Spenders, 7%; and Confident Borrowers, 4%.

These categories reflect differences in how people approach money and financial decisions. A cautious saver, a household struggling to meet regular expenses and a consumer comfortable with borrowing are unlikely to respond to the same product design or marketing approach in the same way.

For digital finance providers, the implication is that inclusion cannot be measured solely by the number of people who can access an app or complete a transaction. It must also consider whether products suit users’ circumstances and whether consumers can make informed decisions about borrowing and repayment.

Amazon Pay India CEO Vikas Bansal said the report points to a shift in how consumers use payment applications.

Digital Credit Inclusion Index (DCII) Scores

Metric	Score
Overall India Score	55.85 / 100
Access	61.24
Adoption	57.17
Impact	49.16

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Trust Ratings (out of 5)

Category	Rating
Security	4.11
Payments	3.98
Credit/Borrowing	3.10

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DCII by City Tier

Tier	Score
Tier-2 Cities	58.64
Tier-3 Cities	55.77
Tier-1 Cities	53.10

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Digital Credit Usage in Tier-2 Cities

Product	Usage Rate
BNPL (Buy-Now-Pay-Later)	60%
Credit Applications	41%

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Consumer Financial Personas

Persona	% of Population
Planners	41%
Savers	33%
Survivors	15%
Impulse Spenders	7%
Confident Borrowers	4%

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Merchant Sentiment by City Tier (Extremely Open to Digital Payments)

Tier	%
Tier-3	66.4%
Metro/Tier-1	64.3%
Tier-2	51.7%

“What stands out this year is how confidently urban India is adopting digital credit to manage everyday finances,” Bansal said, noting that consumers were using credit for practical purposes such as splitting costs, staying within budgets and making aspirational purchases more accessible.

He said Amazon Pay’s focus was on making credit “simple, transparent and relevant so that every customer can plan better, spend smarter and fulfill their aspirations with confidence.”

The report’s findings, however, suggest that confidence will need to be earned across several fronts. Consumers remain more comfortable using payment apps for transactions than for borrowing; informal earners face challenges in conventional credit assessment; and merchants continue to identify settlement delays as a constraint.

For India’s fintech industry, the next stage of growth will depend on whether platforms can address these gaps while preserving the convenience that made digital payments widely used in the first place.

The central measure of progress will not simply be how many consumers use a payment app or how many credit products appear inside it. It will be whether digital finance reaches people who have been poorly served by conventional systems, offers credit they can reasonably manage and helps businesses operate with greater certainty.

India has built a broad digital-payments habit. The harder task is turning that habit into financial inclusion that can be measured in outcomes—not just transactions.

By Subramanya Joshi

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