The Challenge

Small and medium-sized enterprises (SMEs) are crucial to economic growth worldwide, accounting for approximately 90 percent of businesses and half of all employment. At the same time, they also stand at the intersection of two rapidly expanding financial innovations: next-generation POS technology and revenue-based financing. Uneven adoption of these tools can create market-level uncertainty and raise new consumer protection challenges. While the direct benefits of new payment technology are often assumed, less is known about their broader competitive effects, such as whether adoption leads to efficient reallocation and market expansion or worsens inequality by pushing less-resourced firms out of the market. Additionally, emerging credit models like revenue-based financing raise consumer protection concerns around information asymmetry, and over-indebtedness. 

South Africa provides an important setting to study these dynamics. SMEs contribute 34 percent of the country’s GDP while South Africa has the highest level of inequality in the world. These conditions make it especially important to understand whether point-of-sale technology upgrades promote broad-based growth or widen gaps between firms, and whether revenue-based financing can expand access to credit while managing lending risks.

The Evaluations

In partnership with a leading provider of point-of-sale technology to SMEs, researchers are conducting two studies in South Africa to evaluate how next-generation point-of-sale technology reshapes market competition and how revenue-based financing product features can mitigate problems like borrowers taking excessive risks and lenders struggling to identify risky borrowers. To do this, researchers are collecting administrative data from over 160 thousand SMEs and 20 million consumers in South Africa on their financial technology partner’s platform from 2021 to 2025.

In the first study, researchers will analyze the partner’s staggered rollout of a mandatory, free digital point-of-sale technology upgrade that provided longer battery life, increased reliability, and faster processing. The staggered rollout by the partner allows researchers to isolate direct effects on firms that received the upgrade and measure competitive ripple effects on nearby rivals who did not immediately receive the upgrade. Researchers will calculate these effects based on the share of upgraded competitors working in the same industry and operating nearby, and use anonymized card IDs to track how consumers shift their spending between firms.

In the second study, researchers will focus on the partner’s revenue-based financing product, which provides a cash advance with repayment tied to the ongoing revenues that firms process through their payment technology. This flexibility is attractive for small businesses with volatile income, but it also creates potential challenges. If borrowers can shift revenues away from the platform (to avoid repayment), they may take on excessive debt. And if lenders cannot observe borrower quality before lending, they may inadvertently select risky borrowers. 

Researchers will investigate the impact and challenges of this product based on two events that occurred:

First, a competitor's geographically concentrated price cut on a similar POS device created an opportunity for borrowers to shift their sales away from the lending platform. By comparing borrowers in affected versus unaffected regions, the researchers can measure whether access to an outside option leads borrowers to hide revenues. Second, a temporary system error delayed offers to new merchants, generating variation in how long the platform could observe behavior before extending credit. This allows researchers to study how screening affects the selection of risky borrowers.

Results

Results will be available in 2027.

Sources

^1. World Bank Group, “Small and Medium Enterprises (SMEs) Finance,” World Bank Group, Date accessed January 9, 2026

^2. Higgins, Sean. "Financial technology adoption: Network externalities of cashless payments in Mexico." American Economic Review 114, no. 11 (2024): 3469-3512.

^3. The Banking Association South Africa, “Small & Medium Enterprise,” The Banking Association South Africa, Date accessed January 9, 2026, https://www.banking.org.za/what-we-do/sme/

^4. Imraan Valodia, “South Africa can’t crack the inequality curse. Why, and what can be done,” University of Witswatersrand, September 15, 2023, https://www.wits.ac.za/news/latest-news/opinion/2023/2023-09/south-africa-cant-crack-the-inequality-curse-why-and-what-can-be-done.html