New Delhi – A recent survey report by Chase India, titled *The State of Digital Payments in India*, reveals that digital payment usage is gaining traction in Tier 3 to 6 cities across India. According to the report, more than 40% of consumers in these cities use digital payments daily, while 45% use them once every two days. This highlights the growing adoption of digital transactions even in smaller and rural areas of the country.

Indian cities are classified based on population size: Tier 1  cities have 100,000+ people, Tier 2  cities have 50,000-99,999, and Tier 3  cities have 20,000-49,999. Smaller cities and towns fall into Tier 4 to Tier 6 based on decreasing population.

The report underscores the frequent use of digital payments by consumers in these regions. Around 74% of consumers reported using digital payment services for transactions made by family members, indicating the widespread use within households.

Despite this growing trend, significant challenges remain, particularly for merchants. Approximately 46% of merchants who have not adopted digital payments are unaware of the service, while nearly half of those who do use digital payments receive less than 25% of their sales through these channels. Only 15% of merchants reported that more than 50% of their sales are processed digitally, suggesting there is still considerable potential for growth at the grassroots level.

In contrast to the merchants, a staggering 94% of consumers who do not use digital payments are aware of the service but choose not to use it. The report identifies several barriers, including a lack of internet connectivity, limited knowledge, mistrust in online payments, and various service-related issues. These factors contribute to the hesitancy among rural consumers to fully embrace digital payment methods.

The survey found that, on average, around 36% of merchants process over 50 digital payment transactions each month, while 23% process only one digital transaction every alternate day. Most merchants reported processing digital payments amounting to less than Rs 15,000 per month, with only a few handling transactions exceeding Rs 1 lakh. This indicates that while digital payments are being used, the volume of transactions remains relatively low for many merchants.

The report also highlights the significant challenges that hinder the broader adoption of digital payments. These include inadequate infrastructure, service-related issues, capacity constraints, and a general lack of trust in digital payment systems. These factors contribute to the slow adoption rate among both consumers and merchants in rural areas.

One of the critical steps in the adoption of digital payments is the Know Your Customer (KYC) process, which is essential for onboarding merchants. However, the survey found that nearly one in three merchants faced difficulties in completing the KYC process. The challenges include a lack of necessary documents, capacity constraints, and the time required for onboarding. These issues further complicate the expansion of digital payment services in rural and underserved areas.

The findings are based on a survey of 2,240 respondents, including 1,184 consumers and 1,056 merchants, across 16 districts in eight states representing different geographic zones of India. The report's comprehensive insights provide a clear picture of the current state of digital payments in India, particularly in smaller cities and rural areas, and the significant potential for growth if the existing challenges can be addressed.