Tier-2 cities lead digital credit adoption, outpace metros: Report

While 88% of urban consumers are aware of digital credit, only 31% use it. Tier-2 cities lead in buy now, pay later usage at 60 per cent and credit applications at 41 per cent, as per report

Digital payments have become an everyday habit for urban Indians, with UPI (Unified Payments Interface) leading in five of six spending categories and 75 per cent of respondents having used at least one financial product through their payment app, according to a report by Amazon Pay and Pahlé India Foundation. But confidence in digital credit remains limited. While 88 per cent of consumers are aware of digital credit, only 31 per cent use it, the How Urban India Pays Report 2026 found. The report is based on a survey of 5,149 consumers and 1,054 merchants across 100 cities in 20 states.

 

The report introduced the Digital Credit Inclusion Index 2026, a composite benchmark of India’s digital credit adoption, access and impact. India scored 55.85 out of 100, placing it in the “Emerging and Served” category, with scores of 61.24 for access, 57.17 for adoption and 49.16 for impact. The findings highlight that while digital credit is within reach for most urban Indians, its broader financial impact remains limited.

 

“What stands out this year is how confidently urban India is adopting digital credit to manage everyday finances,” said Vikas Bansal, chief executive officer of Amazon Pay India. “Consumers are increasingly turning to BNPL (buy now, pay later) and EMI options not just for big-ticket purchases, but as practical tools to spread costs, stay within budget and make aspirational purchases more accessible.”

 

At Amazon Pay, Bansal is seeing this shift first-hand, with 75 per cent of its customers in Tier-2 and Tier-3 cities. “Our focus is on making credit simple, transparent and relevant so that every customer can plan better, spend smarter and fulfil their aspirations with confidence,” said Bansal.

 

At the consumer level, the shortfall in impact is rooted in trust. Users rate their payment apps highly for security (4.11 out of 5) and payments (3.98 out of 5), but confidence drops to 3.10 when the same app offers credit. The gap appears solvable: 51.5 per cent say they would borrow through their app if fraud protection were guaranteed, compared with just 16.7 per cent who would still decline.

 

“In less than a decade, UPI has moved from novelty to reflex, and urban India now pays digitally as a matter of habit,” said Rajiv Kumar, chairman of Pahlé India Foundation. “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.”

 

With transparent disclosure, robust cybersecurity and safety measures, and underwriting that recognises informal incomes, digital finance can reach every Indian and make a meaningful contribution to the goal of Viksit Bharat 2047, Kumar said.

 

The report found that 52 per cent of respondents would prefer a single app for payments, investments, insurance and credit. Another 33 per cent would consider using one if it matched dedicated platforms feature for feature.

 

UPI is the most-used payment method for e-commerce, with 71 per cent of respondents using it. It is followed by eating out and travel (54 per cent), fuel and transport (53 per cent), medical and pharmacy (53 per cent), and groceries (49 per cent).

 

Festive-season spending rises sharply, with 77 per cent of respondents spending at least 50 per cent more than usual. Some 46 per cent spend 1.5 to two times their regular budget, while 6 per cent spend more than three times as much. Rajkot and Ahmedabad record the highest shares of respondents spending three times or more. In Jaipur, 88 per cent spend at least double their usual budget. Consumer electronics and home appliances account for the highest-value purchases. Fashion and beauty lead in purchase volume at 89 per cent, followed by home and kitchen (87 per cent) and everyday items and groceries (84 per cent).

 

Tier-2 cities have higher digital credit usage than metros across every product measured. They lead in buy now, pay later (BNPL) usage at 60 per cent and credit applications at 41 per cent. Their Digital Credit Inclusion Index score of 58.64 exceeds those of Tier-1 cities (53.10) and Tier-3 cities (55.77). Coimbatore records the highest use of instalment financing for electronics and appliances at 70 per cent, nearly 10 times the national norm. Kochi follows at 45 per cent. Surat, Bengaluru and Chandigarh show the strongest BNPL adoption for fashion, while credit cards dominate festive shopping in Mumbai.

 

Gig workers show strong engagement with digital finance, alongside an unmet need for credit. Some 67.5 per cent use UPI Lite regularly, while 23 per cent would turn first to a digital loan app in a cash crunch, 3.4 times the national norm. Another 43 per cent say digital credit has increased their financial independence. Informal earners, including gig workers, daily-wage workers, homemakers, students and the unemployed, score about 11 points below salaried and business respondents on the Digital Credit Inclusion Index. This reflects the challenge of assessing irregular incomes through conventional underwriting.

 

Among senior citizens, 55 per cent say digital payments make them feel confident and independent. Nearly half (49 per cent) say their use of digital payments has become a regular habit over the past year.

 

Among merchants surveyed, 80.6 per cent are open to digital payments, while 79.5 per cent report efficiency or sales gains since adopting them. Tier-3 merchants are the most enthusiastic, with 66.4 per cent describing themselves as “extremely open”. The share is 64.3 per cent among metro and Tier-1 merchants and 51.7 per cent among Tier-2 merchants. Among hesitant merchants, 72.1 per cent cite settlement delays as their primary concern.

 

The study identifies five financial personas: Planners (41 per cent), Savers (33 per cent), Survivors (15 per cent), Impulse Spenders (7 per cent) and Confident Borrowers (4 per cent). Nearly three in four consumers identify as Planners or Savers. Survivors, who are more cautious about credit and rely more on savings and family, represent about one in seven consumers.