Financial Literacy and Digital Payment Adoption in Strengthening the Financial Performance of Small and Medium Enterprises

Abstract

The rapid digitalization of financial activities has transformed how small and medium enterprises manage transactions, financial records, and business resources, while differences in financial literacy continue to influence the effectiveness of technology adoption. This study aims to explore how SME owners understand digital financial literacy, how financial knowledge shapes decisions concerning digital payment adoption, how digital payments transform financial practices, and how entrepreneurs perceive their contribution to financial performance. A qualitative multiple-case study was employed involving SME owners and managers who utilized QR payments, electronic wallets, mobile banking, payment gateways, and digital banking services. Data were collected through in-depth interviews, observations of payment practices, financial records where accessible, and digital payment documentation. The data were analyzed thematically through transcription, initial coding, category development, theme identification, cross-case analysis, and interpretation. The findings indicate that financial literacy provides an important cognitive foundation for evaluating digital financial services, assessing risks, and making technology adoption decisions. Digital payment adoption subsequently improves transaction efficiency, financial record visibility, payment verification, and cash-flow monitoring when integrated into systematic financial management practices. Nevertheless, limited digital competence, transaction costs, infrastructure constraints, cybersecurity concerns, and customer preferences continue to restrict adoption. The study contributes a capability-based explanation linking financial literacy, digital payment adoption, financial record transparency, financial management, and SME business performance.