New Delhi, Oct 13: Digital payments have become a part of everyday life for urban Indians. However, the same confidence has not extended to digital credit, such asBuy Now, Pay Later(BNPL) services and digital loans.

Three out of four urban Indians, or 75 per cent, have used at least one financial product through their primary payment application. Yet, only 31 per cent have used digital credit, despite 88 per cent being aware of it, according to the How Urban India Pays Report 2026, released by Pahlé India Foundation in collaboration with Amazon Pay.

The findings highlight a key challenge for India's digital finance sector. People are comfortable making payments through apps, but many remain cautious about borrowing money through the same platforms.

What is holding back digital credit adoption?

Trust remains one of the biggest barriers to digital credit adoption. The report found that users rated payment applications 4.11 out of 5 for security and 3.98 for payment services. However, the trust score dropped to 3.10 when these platforms offered credit.

This suggests that consumers view making payments and borrowing money differently. While they may trust an app to transfer money, they are less confident about using it to access credit. Fraud protection could help bridge this gap. According to the report, 51.5 per cent of respondents said they would borrow through their payment application if fraud protection were guaranteed. In comparison, only 16.7 per cent said they would still refuse to borrow.

The findings indicate that stronger security measures and greater consumer confidence could encourage more people to use digital credit.

What does India's Digital Credit Inclusion Index show?

The report introduced the Digital Credit Inclusion Index (DCII) 2026 to measure the country's progress in digital credit access and usage. India scored 55.85 out of 100, placing it in the "Emerging & Served" category.

The index measures three key areas: access, adoption and impact. Access received a score of 61.24, while adoption scored 57.17. Impact recorded the lowest score at 49.16. The figures suggest that consumers have opportunities to access digital credit, but the benefits of these services have not reached their full potential.

The gap between access and impact also points to the need for better products, greater trust and more effective systems to ensure digital credit meets consumers' needs.

Why are Tier-2 cities leading in digital credit?

Smaller urban centres are emerging as important markets for digital credit. According to the report, Tier-2 cities recorded a DCII score of 58.64. This was higher than the score of 53.10 for Tier-1 cities and 55.77 for Tier-3 cities. Tier-2 cities also led in the use ofBuy Now, Pay Laterservices, at 60 per cent. Credit application usage stood at 41 per cent.

The findings suggest that digital credit is gaining traction beyond metropolitan centres. Consumers in smaller cities are increasingly exploring digital borrowing options to manage their spending. Vikas Bansal, Chief Executive Officer of Amazon Pay India, said consumers were using BNPL and equated monthly installment (EMI) options for everyday expenses, rather than only for expensive purchases.

He said these services help consumers spread costs, manage budgets and make desired purchases more accessible. Bansal added that 75 per cent of Amazon Pay's customers in Tier-2 and Tier-3 cities reflected the growing importance of these markets for the company.

What do consumers and businesses need?

Building trust will be essential to expanding digital credit adoption. Rajiv Kumar, Chairman of Pahlé India Foundation, said Unified Payments Interface (UPI) had transformed digital payments from a new concept into a daily habit. "In less than a decade, UPI has moved from novelty to reflex, and urban India now pays digitally as a matter of habit," Kumar stated. He said India could now build on this progress by extending the trust established in digital payments to borrowing, saving and investing.

Kumar highlighted the importance of transparent disclosures, stronger cyber security and credit assessment systems suited to people with informal incomes. These measures could help more consumers’ access to digital financial services while improving their confidence in using them. Businesses also face challenges in the shift towards digital payments.

The report found that 80.6 per cent of merchants were open to accepting digital payments. However, 72.1 per cent of sellers who were hesitant identified delays in receiving payments as their main concern. This shows that digital finance must work for businesses as well as consumers. Faster settlements could help address one of the key concerns preventing some merchants from fully embracing digital payments.

What lies ahead?

Digital credit can promote financial inclusion by helping people access formal borrowing through payment apps, including those who may have limited access to traditional credit services. It can also help consumers manage everyday expenses through installments and Buy Now, Pay Later options. However, wider inclusion will depend on transparent lending terms, strong fraud protection and responsible credit assessments that account for informal incomes. These measures can help build trust and make digital credit more accessible and useful to a wider section of society. (With ANI inputs)