Micro, small, and medium-sized enterprises (MSMEs) represent more than 90% of businesses and more than 50% of employment worldwide, an important source of job creation and economic development, particularly in low- and middle-income countries. New technologies, such as point of service (POS) terminals that enable e-payments, could benefit MSMEs and their customers if they increase the accessibility, safety or volume of transactions and related financial services. For example, e-payments generate valuable digitized transaction data that can allow MSMEs to track income flows, manage their inventory, and unlock new credit lines through alternative modes of assessing their creditworthiness. Yet MSMEs often do not adopt potentially beneficial technologies, perhaps due to uncertain financial returns, high monetary and regulatory costs, or entrepreneur risk aversion, among other constraints (see this blog for a discussion of the benefits and drawbacks as seen by merchants). In partnership with a financial technology (FinTech) company in Mexico, the research team experimentally tests the role of three behavioral biases — present bias, limited memory, and overconfidence– in explaining low adoption of payment technology in Mexico and the impact of the technology on business outcomes.
The research team randomly offers businesses that are already payment technology users the opportunity to be charged a lower merchant fee for each payment they receive from customers. They randomly vary the size of the fee reduction (the median fee reduction is 3 percent of profits), whether the firms face a deadline to accept the offer, whether the firms receive a reminder to accept the offer, and whether the firms receive advance notice that they will be reminded. The research team finds that firms procrastinate, and the deadline only has an effect for lower-value offers. Reminders increase take-up of the lower fee by 15 percent regardless of the offer’s value, and anticipated reminders by an additional 7 percent. The research team conducts a survey to understand mechanisms behind the significant additional effect of the anticipated reminder relative to the unanticipated reminder, and find that receiving a reminder from the FinTech company when they had already been told they would receive a reminder increases firms’ perceptions of the offer’s value.