Study Overview
Firms frequently fail to adopt profitable business opportunities even when they do not face informational or liquidity constraints. We explore three behavioral frictions that explain inertia among individuals—present bias, limited memory, and distrust—in a managerial setting. In partnership with a FinTech payments company in Mexico, we randomly offer 33,978 f irms the opportunity to pay a lower merchant fee. We vary whether the offer has a deadline, reminder, pre-announced reminder, and the size of the fee reduction.
Study Results
Reminders increase take-up by 15%, suggesting a role of memory. Announced reminders increase take-up by an additional 7%. Survey data reveal the likely mechanism: When the FinTech company follows through with the pre-announced reminder, firms’ trust in the offer increases. The deadline does not affect larger firms, implying limited or no present bias, but does increase take-up by 8% for smaller firms. Overall, behavioral frictions contribute significantly to explaining profit-reducing firm behavior.
Intervention: Random variation in contract terms
Populations: Small businesses
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)
News & media
Why Small Firms Take a Pass on Profitable Opportunities
March 4, 2025
One of the most effective ways a business can increase its clients’ uptake of new opportunities is to build trust over time by announcing it will perform an action and then making sure to follow through when the time comes. In the case discussed here, a fintech company was able to increase uptake for lower payment-processing fees by first telling clients they would send them a reminder and then following up with the actual reminder closer to the deadline.
Weighing the Benefits and Drawbacks of e-Payments: Insights from Small Businesses in Mexico
June 28, 2018
For the merchants we spoke with, the benefits to accepting card payments seem to outweigh the drawbacks. Even those who we categorized as “inactive” users acknowledged that urban customers increasingly want to pay by card. Ultimately, while micro businesses may be frustrated with the commission rates and increase in registered transactions, these factors aren’t enough of a deterrent to abandon e-payment technology entirely.