The Role of Digital Payment Infrastructures in MSME Growth Around 80 per cent of MSMEs reported positive impacts from adopting digital technology, with Aadhaar banking and UPI being the most utilized services at the last mile.
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The shift from cash to digital payments has made transactions faster, more secure, and cost-effective. This allows business owners to focus more on strategic growth initiatives rather than financial logistics, reducing administrative burdens and minimizing errors. Most of the MSMEs in India are sole proprietors resulting in limited managerial bandwidth and oversight. Formalization of the business and the overall economy is also addressing the data deficit that financiers face while assessing MSMEs for credit.
Digital payment infrastructures like UPI, mobile wallets, and other fintech solutions have been game-changers for MSMEs. These platforms have democratized access to financial services, enabling even the smallest businesses to participate in the formal economy. "By making payments faster, more transparent and widely accessible, MSMEs are able to transact seamlessly with suppliers, customers and partners across the globe. This has fueled growth, improved cash flow management and reduced the friction traditionally associated with cross-border transactions, allowing businesses to focus on scaling operations rather than being bogged down by payment delays," said Pushkar Mukewar, CEO and co-founder of Drip Capital.
Rajat Deshpande, CEO & co-founder of FinBox, highlights India's phenomenal growth in the adoption of digital payments, which is riding on the back of UPI, strengthened by the government's zero MDR (Merchant Discount Rate) policy. He points out that UPI-led retail digital payments have grown at a compounded annual growth rate (CAGR) of 50 percent in volume and 27 percent in value. "Due to the penetration of FinTech experiences such as wallets and UPI, customers now expect speed and ease of checkout and shopping, whether online or offline. Solutions like BNPL (Buy Now, Pay Later), checkout financing and credit lines are helping platforms prequalify borrowers, assess risk in an instant and directly offer credit at a cart level," added Deshpande.
"UPI and mobile wallets have made it easy for MSMEs to accept payments. It has helped businesses incorporate into the financial fold, enabling them to build financial profiles, track income, and develop digital footprints," added Yashwant Lodha, co-founder of PayNearby. This financial footprint is critical in securing formal credit, as it allows businesses to establish credibility and access loans that were previously out of reach.
Vinod Parmar, group CFO at Vayana, further elaborated on the benefits of digital payment infrastructures, stating, "The shift from cash to digital payments has made transactions faster, more secure, and cost-effective. This allows business owners to focus on strategic growth initiatives rather than financial logistics, reducing administrative burdens and minimizing errors. For MSMEs to continue thriving in the digital age, industry bodies must support their adoption and use of digital tools. As MSMEs embrace digital transformation, they will be better positioned to compete globally and contribute significantly to India's economic development." Parmar also emphasized how digital tools provide MSMEs with real-time insights into their cash flow and receivables, facilitating better working capital management. These tools also offer early warning signs about the financial health of partners, helping businesses minimize disruptions and offering alternatives for credit assessment based on transaction data.
In PayNearby's MSME Digital Index report, 80 per cent of MSMEs reported positive impacts from adopting digital technology, with Aadhaar banking and UPI being the most utilized services at the last mile. These payment solutions have not only empowered businesses but also accelerated financial inclusion, bringing more entrepreneurs into the formal economy and enabling their sustainable growth.
Swati Bhargava, co-founder of CashKaro and EarnKaro also points out the growing role of digital payments, stating, "Digital payments have become a highly convenient and straightforward way for people to make transactions. In the financial year 2024, India recorded around 164 billion digital payments. MSMEs greatly benefit from adopting digital payments as well. By accepting these payments, MSMEs can access online marketplaces and e-Commerce platforms, extending their reach from local markets to a global audience."
Echoing the importance of payment efficiency, Mukul Goyal, founder and director of Stratefix Consulting, pointed out that UPI transactions crossed 45 billion in volume in 2023, underscoring the increasing acceptance of cashless transactions among both consumers and businesses. This rise in digital payments has also reduced the risks associated with cash transactions for small businesses, leading to a 20 percent increase in sales for MSMEs that adopt digital payment systems.
Additionally, Nilay Patel, founder & managing director of EasyPay, emphasized that digital payment infrastructures have streamlined transactions, reduced dependence on cash and improved overall business efficiency. These systems have enabled businesses, especially in rural and remote areas, to gain access to formal financial systems, fostering business growth and expanding their market reach.
The impact of digital payment infrastructures extends beyond just transaction efficiency. As per Shiprocket's data, optimizing the checkout process and offering diverse payment options can significantly improve conversion rates for businesses. Brands see an 80 percent increase in conversions after implementing payment optimizations, demonstrating the importance of a seamless payment experience in driving business growth.
"While UPI dominates the market, contributing to 88 percent of all transactions and being highly favored for lower order values (under INR 1000), credit and debit cards also play a notable role. Credit and debit cards account for 9 percent of total transactions and are primarily used for higher-value purchases. Specifically, for transactions exceeding INR 5000, credit and debit cards make up around 40 percent of transactions in this category. This indicates that customers prefer using cards for larger purchases, which offers MSMEs a reliable payment option for higher-value orders," Goyal revealed.
Looking ahead, digitalization is not merely a trend but a fundamental shift in how MSMEs operate in India. Patel added that the transparency and speed offered by digital payment solutions have enhanced trust and fostered stronger business relationships, allowing MSMEs to scale more efficiently. Rajat Deshpande also pointed out that this digital revolution, supported by government initiatives like Digital India, is giving small businesses access to the tools necessary for growth. As Goyal observes, digital transformation could create 50 million new jobs in the MSME sector by 2030, underscoring the potential for economic development.
As MSMEs continue to embrace digital tools for financing, payments, and operational efficiency, they are unlocking their full potential, contributing to a more resilient and inclusive economy. By adopting these technologies, businesses can scale more effectively, improve customer experiences, and position themselves to compete on a global stage. Entrepreneurs paving the way with digital transformation are creating a brighter future for themselves, their communities, and the country at large.
