Digital Payments and MSME Performance in India: Examining UPI Adoption Through a Modified TOE Framework

This paper focuses on the Indian micro, small, and medium enterprises (MSMEs) and how Unified Payments Interface (UPI) has affected their operational efficiency, financial performance, and competitiveness in the market. It brings together the latest literature of secondary data with an enhanced technique-organisation-environment (TOE) framework to identify the most influential factors, barriers and policy implications for the spread of digital payment in the MSME segment. Data and information from official sources like RBI Digital Payments Reports, NPCI UPI data, reports by the Ministry of MSME, World Bank Enterprise Surveys (2024), and the TRAI reports have been used in the study to derive quantitative trends, which has been structured as a descriptive-conceptual study design. The highest UPI transactions seen in January and February 2026 were 21.7 billion and 20.39 billion respectively, and in all retail digital payments across India, 84 percent were through UPI transactions during the FY 2025-26 period. The MSME relevant volumes are relatively low value transactions, constituting the bulk of the volume. In the qualitative literature reviewed here, adoption has been found to be correlated with rapid settlement, reduced transaction and bookkeeping costs, and increased customers' reach and their access to credit for adopting firms, but effect sizes that can be independently verified to increase or decrease have, to date, not been provided exactly for the Indian MSMEs for these gains. However, the issues of moderate elements are well known officially, such as the lack of digital literacy for MSME owners, lack of connectivity in rural areas, and cybersecurity problems, that hinder rural MSMEs and women-led MSMEs particularly. One first-of-its-kind study to marry the UPI surge data from after 2023 with a customised TOE framework that addresses the rural-specific challenges, such as digital literacy and connectivity, in the Indian MSME environment. It builds testable propositions and comes up with actionable recommendations to policy absolutely in sync with the goals of Atmanirbhar Bharat.