The cost-convenience paradox: How merchant fees shape electronic payment adoption among micro, small, and medium enterprises and their customers in Lusaka, Zambia

Abstract

The adoption of electronic payments has emerged as a key element in the strategy for promoting financial inclusion throughout sub-Saharan Africa. However, the complex fee structures imposed on merchants present a significant obstacle to the uptake of these methods, particularly in informal economic environments. This research investigated the impact of merchant fees on the choice to utilize electronic payment systems among micro, small, and medium enterprises (MSMEs), as well as their customers in Lusaka, Zambia. In this setting, we must recognize that 95.6% of MSMEs operate without formal documentation, yet payment service providers charge numerous costs for every digital exchange. The study was guided by a dual theoretical framework combining Transaction Cost Economics (TCE) and the Technology Acceptance Model (TAM), which together informed the analysis of both the economic efficiency trade-offs and the behavioral dimensions of electronic payment adoption. The study utilized a combined approach, mixing both methods, collecting numerical data from the targeted population comprised of MSMEs operating in Lusaka’s formal and informal commercial sectors who were registered with or using services of Payment Aggregators (Konse Konse 543, Kazang, Izwe Pay) and Mobile Network Operators (Airtel Money, MTN MoMo), as well as adult consumers transacting with these businesses. A sample of 200 customers and 100 MSMEs was selected using random sampling across groups, further supported by nine in-depth discussions with specific MSME personnel. The statistical assessment employed chi-square tests and Spearman's rank correlations within SPSS version 27, while descriptive information was examined using reflective subject-based techniques. The findings revealed that 93.5% of patrons used mobile money, primarily through Airtel Money, and seventy-three point five percent participated in card payments at physical checkout locations. However, seventy-five percent of consumers bore the transaction charges personally, and sixty-eight percent of MSMEs acknowledged that these charges affected their usage choices. Despite the generally high levels of use, fifty-two percent of MSMEs passed the exchange costs onto those they served, with seventy-two percent expressing a preference for alternatives with lower charges. The descriptive review made clear that fees between two percent and three point five percent were viewed as cutting MSME profits by amounts varying from fifteen percent to thirty percent. The research introduces the concept of the cost-convenience paradox, highlighting the coexistence of substantial usage statistics alongside challenges regarding fees. Additionally, it offers a detailed framework that integrates Transaction Cost Economics (TCE) with the Technology Acceptance Model (TAM) to enhance the understanding of the mutual adoption of electronic payment systems in low- and middle-income countries (LMICs). Key factors such as varying levels of education and income were identified as significant elements influencing adoption choices (p < 0.05). Recommendations for policy development focus on limiting charges, modifying prices to align more closely with industry needs, ensuring transparency, and supporting specific digital skills training programs.