Amazon Pay is strengthening its focus on digital credit as it looks to expand beyond payments and reach more consumers in smaller Indian cities. More than 75% of its users come from Tier-2 and Tier-3 cities, according to the company’s leadership, while over two-thirds of transactions now take place outside Amazon’s own shopping ecosystem. The strategy reflects Amazon Pay’s ambition to become a broader financial-services platform rather than remaining primarily a checkout option for online purchases.
The opportunity is significant, but consumer trust remains a barrier. The How Urban India Pays 2026 report, published by Pahlé India Foundation in collaboration with Amazon Pay, found that 88% of surveyed consumers were aware of digital credit, while only 31% used it. Amazon Pay is looking to address this gap through credit products, clearer disclosures, digital education and improved grievance redressal. Its expansion comes as buy now, pay later (BNPL) and equated monthly instalment (EMI) options become more familiar to consumers, including those outside major metropolitan markets.
Key Takeaways
- Small-town focus: More than 75% of Amazon Pay users are from Tier-2 and Tier-3 cities.
- Transactions beyond Amazon: Over two-thirds of Amazon Pay transactions occur outside Amazon’s own shopping ecosystem.
- Credit opportunity: The 2026 survey found that 88% of consumers were aware of digital credit, but only 31% used it.
- BNPL adoption: Around 60% of surveyed Tier-2 consumers had used BNPL, compared with 45% in metros and 52% in Tier-3 cities.
- Pay Later growth: Amazon Pay reported that EMI adoption doubled during the 2026 festive sales period.
- Trust remains crucial: Consumers remain less confident when payment apps offer credit than when they process payments.
- Broader strategy: Amazon Pay is expanding its financial-services proposition across credit, insurance and other products.
Amazon Pay Shifts Focus Beyond Online Shopping
Amazon Pay began as a payment option within Amazon’s shopping ecosystem, but its ambitions have expanded as digital payments have become more widely used in India. The platform now wants to serve customers across a broader range of transactions, including purchases made at external merchants.
According to Financial Express, Amazon Pay works with more than 10,000 online and offline merchants, although the company is still developing its reach beyond its own ecosystem. This wider acceptance can help the platform become more relevant to customers who use digital payments for everyday purchases rather than shopping exclusively on Amazon.
The strategy also creates an opportunity to offer financial products to users who already have an established relationship with the platform. Customers familiar with digital payments may be more willing to explore credit, insurance or other services when these are accessible through the same application.
However, payments and lending involve different levels of risk. A successful payment does not necessarily mean a consumer is comfortable borrowing through the same app. Amazon Pay will need to build confidence in credit eligibility, repayment obligations, data protection and customer support.
Why Smaller Cities Are Central to the Strategy
Amazon Pay’s user base is increasingly concentrated outside India’s largest metropolitan areas. More than three-quarters of its users reportedly come from Tier-2 and Tier-3 cities, making these markets central to its next stage of growth.
Smaller cities can offer financial-services providers opportunities to reach consumers whose borrowing options may be more limited or less convenient than those available to established urban customers. Digital platforms can reduce some of the friction involved in discovering and applying for financial products.
The How Urban India Pays 2026 study found that BNPL usage was higher in Tier-2 cities than in metros. About 60% of respondents in Tier-2 cities had used BNPL, compared with 45% in metros and 52% in Tier-3 cities.
| Digital-credit indicator | Survey finding |
|---|---|
| Consumers aware of digital credit | 88% |
| Consumers who use digital credit | 31% |
| Tier-2 respondents who have used BNPL | 60% |
| Tier-3 respondents who have used BNPL | 52% |
| Metro respondents who have used BNPL | 45% |
| Amazon Pay users from Tier-2 and Tier-3 cities | More than 75% |
Sources: How Urban India Pays 2026 report and Financial Express. Survey percentages refer to respondents, not the share of all Indian consumers.
The findings point to a potential opportunity in smaller cities, although they do not mean that all consumers in these markets are ready to borrow. The ability to offer appropriate products will depend on creditworthiness, income stability, affordability and consumers’ understanding of repayment terms.
Digital Credit: A Large Gap Between Awareness and Usage
The report’s finding that 88% of consumers know about digital credit while only 31% use it highlights a gap between awareness and adoption.
Digital credit includes financial products that allow consumers to borrow or spread payments through digital channels. Examples include BNPL, EMI financing and digital loan applications. These products differ in their eligibility requirements, costs, repayment schedules and regulatory arrangements.
For Amazon Pay, the challenge is to turn familiarity with digital payments into confidence in borrowing. Consumers may be comfortable scanning a QR code or paying through an app but remain cautious about taking on debt digitally.
The survey points to trust as a key issue. Consumers rated payment apps more positively for security and payments than for credit. The report found average ratings of 4.11 out of five for security, 3.98 for payments and 3.10 for credit.
This gap suggests that the convenience of digital payments does not automatically transfer to financial products with repayment obligations. Consumers need to understand the total cost of borrowing, due dates, late-payment consequences and how a credit product may affect their financial position.
Amazon Pay Later and EMI Options Gain Traction
Amazon Pay is using credit-linked payment options as one route to growth. Its Pay Later services, powered by Axio, allow eligible customers to access credit for purchases under the applicable product terms.
The company reported that EMI adoption doubled during the 2026 festive sales period. The festive season often brings increased shopping activity, making instalment payments attractive to consumers seeking to spread the cost of purchases.
EMIs can make certain products more accessible by dividing payments over a specified period. However, the financial implications depend on whether the offer is interest-free or interest-bearing, the applicable fees and the customer’s ability to meet each instalment.
BNPL and EMI services also require responsible use. Consumers who take on several instalment commitments without accounting for their combined repayment obligations can put pressure on their household budgets.
For Amazon Pay, sustained growth will depend on offering credit to eligible customers while communicating costs clearly and maintaining effective customer support. Greater usage alone is not sufficient evidence of successful or responsible credit expansion.
AI-Powered Smart Wallet and Payment Choices
Amazon Pay is also promoting an AI-driven Smart Wallet designed to help users optimise payment methods for individual transactions. The idea is to help customers navigate available payment options and choose a suitable method based on the transaction and available benefits.
Such features fit the wider shift toward payment applications that combine multiple financial functions. Instead of simply processing a transaction, a platform can help customers discover relevant options and manage how they pay.
The usefulness of these tools will depend on the accuracy of the recommendations, the transparency of any commercial incentives and the ease with which users can understand the alternatives. Consumers should be able to make informed decisions rather than being steered toward borrowing when another payment method may be more appropriate.
AI-based recommendations can support convenience, but they do not replace the need for clear product disclosures, sound credit assessment or user control.
Trust and Transparency Remain Major Challenges
The digital-credit opportunity comes with a clear challenge: consumers must trust the platform and understand the financial commitment before accepting credit.
The report found that 51.5% of respondents said they would borrow through their payment app if fraud protection were guaranteed, compared with 16.7% who said they would still decline. These responses suggest that stronger confidence in security could influence adoption, although stated preferences do not guarantee actual borrowing behaviour.
Amazon Pay says it aims to build trust through transparency, language accessibility and streamlined grievance redressal. These measures matter particularly when financial products are offered to consumers who may be less familiar with digital lending.
Effective consumer protection also requires clear interest and fee disclosures, understandable repayment schedules, secure handling of personal information and accessible complaint mechanisms. Customers should be able to distinguish a payment service from a lending product and understand which regulated lender is providing the credit.
The company will also need to ensure that credit offers are appropriate for customers’ circumstances. Expanding access can be valuable, but unsuitable borrowing can create financial stress for households.
Amazon Pay’s Broader Financial-Services Ambitions
Credit is part of Amazon Pay’s wider plan to build a financial-services business. The company has also expanded into insurance distribution, including health insurance in partnership with HDFC ERGO, and has explored other insurance offerings. Amazon’s acquisition of digital lender Axio in 2025 strengthened its position in India’s lending ecosystem.
This strategy places Amazon Pay in a broader competitive environment where payment apps are looking to offer more than transactions. Consumers may increasingly expect one platform to support payments, credit, insurance and other financial needs.
The How Urban India Pays 2026 report found that 52% of respondents would prefer a single app for payments, investments, insurance and credit. Another 33% said they would consider such an app if it matched the features of specialised platforms.
That preference creates an opportunity for integrated financial services, but it also raises expectations. Customers will compare pricing, product suitability, security and support with alternatives available through banks, lenders, insurers and other fintech platforms.
The Bigger Picture
Amazon Pay’s small-town strategy reflects a wider shift in India’s digital-finance market. Digital payments have become familiar to many consumers, while credit adoption remains lower despite widespread awareness. The relatively high reported use of BNPL in Tier-2 cities gives Amazon Pay a potential route to expand, particularly as it seeks to increase transactions beyond Amazon’s shopping platform.
The long-term outcome will depend on more than adding credit products to a payment app. Consumers need transparent terms, reliable fraud protection, suitable underwriting and accessible grievance redressal. If Amazon Pay can build trust while offering useful products, it could deepen customer relationships and diversify its financial-services activity. If it fails to address those concerns, awareness and access alone may not translate into sustained adoption.
Looking Ahead
Amazon Pay’s next phase will likely centre on expanding its merchant network, improving the discovery of financial products and encouraging eligible customers to use credit responsibly. Its reported growth in EMI adoption during the festive season provides an indication of demand, but longer-term usage, repayment performance and customer satisfaction will be more meaningful measures of progress. The company will also need to demonstrate that its broader services remain useful outside Amazon’s core marketplace.
For India’s digital-credit market, smaller cities represent an important opportunity, but reaching underserved consumers requires products designed around their actual financial circumstances. Transparent pricing, fraud protection and credit assessment that accounts for different income patterns will be critical. Amazon Pay’s ability to combine convenience with consumer confidence will help determine whether its payments platform can become a more comprehensive financial-services destination.
Frequently Asked Questions
1. Why is Amazon Pay focusing on smaller Indian cities?
More than 75% of Amazon Pay’s users reportedly come from Tier-2 and Tier-3 cities. These markets offer opportunities to expand merchant payments and reach consumers interested in digital financial products.
2. What is digital credit?
Digital credit refers to borrowing accessed through digital channels, including BNPL services, EMI financing and digital loan applications. Terms, fees and eligibility vary by product.
3. How widely is digital credit used in India?
The How Urban India Pays 2026 survey found that 88% of respondents were aware of digital credit, but 31% reported using it.
4. Why are Tier-2 cities important for BNPL?
The survey found that 60% of Tier-2 respondents had used BNPL, compared with 45% in metros and 52% in Tier-3 cities. These are survey findings rather than national population estimates.
5. What is Amazon Pay Later?
Amazon Pay Later is a credit-linked payment service available to eligible customers under its applicable terms. Its services are powered by Axio, and customers should review repayment obligations and charges before using credit.
6. What is Amazon Pay’s AI Smart Wallet?
It is an AI-driven feature intended to help users optimise payment methods for individual transactions. Its usefulness depends on transparent recommendations and clear information about available payment choices.
7. What is the biggest barrier to digital-credit adoption?
Trust remains a major barrier. Consumers may be comfortable with digital payments but less confident about borrowing, fraud protection, fees and repayment obligations.
8. Does Amazon Pay provide all the financial products directly?
Not necessarily. Financial products can be offered through partner institutions or regulated lenders and insurers. Consumers should check the provider, terms and applicable disclosures for each product.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
