The Impact of Digital Payment Development on Financing Constraints of Micro and Small Enterprises: An Empirical Analysis Based on Chinese Data

Abstract

Access to formal financing remains a critical barrier for micro and small enterprises (MSEs) in China, particularly for underserved segments such as young firms and those in less developed regions. Traditional lending models often struggle to assess creditworthiness due to information asymmetry and the lack of verifiable financial records. This study examines whether digital payment adoption can alleviate these financing constraints. Leveraging a unique matched dataset that combines digital payment records from a major fintech platform with bank loan applications, we analyze a panel of over 10,000 MSEs across 30 Chinese provinces from 2019 to 2023. We measure digital payment intensity through frequency, transaction volume, and usage consistency, and evaluate its effects on loan approval rates and borrowing costs. Our findings indicate that intensive digital payment use significantly improves MSEs' access to credit and reduces their financing costs. These benefits are disproportionately concentrated among young firms and enterprises located in less economically developed regions. Mechanism analysis reveals that digital payment data mitigates information asymmetry by generating real-time, verifiable signals of business health and operational stability. These results provide robust micro-level evidence on fintech's potential to advance inclusive finance. They offer practical implications for policymakers seeking to reduce financing disparities and for financial institutions aiming to refine credit assessment frameworks for underserved MSEs.