From cash to clicks: How going cashless fuels the growth of micro, small, and medium enterprises in Indonesia

This study explores the role of electronic payment systems influence the performance of Indonesia’s Micro, Small, and Medium Enterprises (MSMEs) as well as the relationship to the Financial Inclusion Index. It combines qualitative interviews with MSME owners with quantitative data from the 2022–2023 World Bank Enterprise Survey, using multiple Ordinary Least Squares (OLS) regression models in STATA to demonstrate the impact of digital financing on the outcomes of the businesses. All five regression models indicate that e-payment usage positively impacts Micro, Small, and Medium Enterprises (MSMEs) at multiple levels across all industries, regardless of the firm’s size, sector, gender ownership, and geographic factors. However, some results of the Financial Inclusion Index (FII) and other financial inclusion metrics are outliers. This is because they are vague at best and even negative at worst. Thus, performance cannot be gained without a deep, practical, strategic, and thorough breakdown of all the operational aspects of a business e.g. digital competencies, digital skills, and digital literacy. This is verified in the interviews as MSME owners explained how electronic payment systems in their businesses streamline the fast and simple transaction processes of their businesses. But some still can't participate in the economy due to factors which include lack of appropriate skills, reliable internet connection, or having payment systems that are too slow. The digitization of payment systems has made Indonesia’s MSME sector more profitable and stable, but the differences in economic gains are still quite clear, both by region and⁠ by gender. For the digital economy to expand notably, it is⁠ essential to provide infrastructure in places experiencing widespread poverty and give women entrepreneurs the tools they need tо be successful.