Adoption of Digital Payment Systems Among Semi-Urban MSMEs: Barriers, Enablers, and Working Capital Outcomes

Abstract

Micro, small and medium enterprises in semi-urban settlements occupy an awkward position in the literature on digital payments. They are neither the rural households studied in the financial inclusion tradition nor the formalised urban firms studied in the technology adoption tradition, and the theoretical apparatus of each transfers only partially. This paper reviews what is known about digital payment adoption by such firms, organised around three questions: what impedes adoption, what enables it, and what happens to working capital once adoption occurs. It argues that the dominant explanatory frame — individual-level acceptance models built on perceived usefulness and ease of use — systematically under-weights the constraints that actually bind for a small trader, which are the cost of acceptance, the reconciliation burden, and the consequences of becoming visible to tax and regulatory systems. The enabling side has been transformed by interoperable public payment infrastructure, which decouples acceptance from the merchant’s choice of provider and reduces the fixed cost of entry to close to zero, but the literature has not yet caught up with the implications for adoption theory. On working capital, the review finds a mechanism-rich but evidence-poor situation: the causal pathways from digital acceptance to shorter cash conversion cycles and improved credit access are well articulated, while the empirical base rests largely on cross-sectional self-report designs that cannot separate adoption from the firm characteristics that produced it. A research agenda is proposed centred on transaction-level data, credible identification, and the neglected question of who is left behind.