DIGITAL PAYMENT SYSTEMS AND THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES: THE MEDIATING ROLE OF TRANSACTION EFFICIENCY IN FINANCIAL INCLUSION AND INCLUSIVE ECONOMIC GROWTH

Abstract

The diffusion of retail digital payment infrastructure has reorganised how small and medium enterprises collect revenue and settle obligations. Documented cash flow, yet firm-level evidence on whether this reorganisation improves enterprise outcomes remains divided among positive, insignificant, and negative direct associations. The mechanism connecting infrastructure to performance is rarely modelled explicitly. This study examines whether transaction efficiency mediates the relationship between the development of digital payment systems and the performance of small and medium enterprises. It quantifies how much of the total effect travels through that channel. The study employs a balanced country-year panel of 49 economies observed annually from 2004 to 2023, giving 980 observations, in which a digital payment systems index combines cashless transaction intensity, acceptance infrastructure and adult usage, a transaction efficiency index combines transfer cost, settlement time and fast-payment penetration, and enterprise performance is measured as the value added of small and medium enterprises as a share of gross domestic product; estimation uses two-way fixed effects with standard errors clustered by economy, a three-equation causal-steps design, the Sobel test and a 1,000-replication cluster bootstrap. The results show that digital payment development increases transaction efficiency by 0.305 points (p < 0.001) and that transaction efficiency increases enterprise value added by 0.337 percentage points (p < 0.001). At the same time, the total effect of 0.140 reduces to a direct effect of 0.037 once efficiency is controlled for. The findings indicate an indirect effect of 0.103 (Sobel z = 9.15; bootstrap 95% confidence interval 0.082 to 0.124) that accounts for 73.68 per cent of the total effect, and a mediated share that is larger in low- and lower-middle-income economies (0.097) than in upper-middle- and high-income economies (0.071).