Fintech spurs SME innovation and supply-chain efficiency

A key finding is that fintech’s impact is not uniform. It is especially pronounced in eastern regions of China, where digital infrastructure is more developed, and in the manufacturing sector, which benefits from improved access to supply-chain finance and more competitive market structures. The study shows that fintech-driven improvements in financial access help SMEs overcome historical disadvantages, thus narrowing the productivity gap with larger firms.

A new study highlights how financial technology is transforming the competitiveness of small and medium-sized enterprises (SMEs) in China. The research reveals that fintech not only drives operational efficiency but also strengthens SMEs’ bargaining position in supply chains, ultimately enhancing their total factor productivity (TFP).

The peer-reviewed study, “Fintech, Bargaining Power and Total Factor Productivity of Small and Medium-Sized Enterprises (SMEs): Evidence from China,” published in SAGE Open, examines the evolving dynamics between fintech development and SME performance. By analyzing data from 1,075 A-share listed SMEs from 2011 to 2019 and constructing a city-level fintech index based on Baidu search data, fintech firm counts, and digital inclusion indicators, the authors provide robust empirical evidence for how digital finance reshapes productivity outcomes.

How fintech raises SME productivity

The research demonstrates that fintech directly improves SME productivity by reducing financing frictions and enhancing the efficiency of resource allocation. SMEs traditionally face higher borrowing costs and limited access to credit compared to larger firms. By leveraging digital lending platforms, data-driven credit scoring, and mobile payment systems, SMEs can access capital more quickly and at lower costs, enabling them to scale production and invest in innovation.

A key finding is that fintech’s impact is not uniform. It is especially pronounced in eastern regions of China, where digital infrastructure is more developed, and in the manufacturing sector, which benefits from improved access to supply-chain finance and more competitive market structures. The study shows that fintech-driven improvements in financial access help SMEs overcome historical disadvantages, thus narrowing the productivity gap with larger firms.

The authors used the Levinsohn-Petrin method to estimate TFP and verified the robustness of their results with alternative estimation techniques. Their evidence points to a consistent positive link between the depth of fintech development and the productivity performance of SMEs, underscoring fintech’s transformative role in economic modernization.

Bargaining power as the central mechanism

Beyond direct financing benefits, the study identifies bargaining power in supply chains as a crucial mechanism through which fintech boosts SME productivity. SMEs often face unfavorable terms in procurement and sales negotiations with larger suppliers and buyers due to their smaller scale and weaker financial backing. The research finds that fintech mitigates this disadvantage by providing better access to digital financing and reducing dependence on dominant players.

Mediation analysis revealed that bargaining power accounts for 13.4 percent of the total fintech effect on SME productivity. By enabling firms to negotiate better prices, manage inventory more efficiently, and reduce payment delays, fintech empowers SMEs to retain more value from their operations. This finding underscores that digital finance is not just a financial tool but also a strategic lever that shifts power dynamics in supply chains.

The study further shows that fintech indirectly supports innovation by lowering supply-chain concentration and improving inventory turnover. These effects are particularly significant for manufacturing SMEs, which rely on efficient procurement and distribution networks. The strengthening of bargaining power creates a positive feedback loop, where higher productivity further enhances competitiveness and encourages further adoption of digital finance tools.

Policy directions for inclusive digital finance

While fintech’s positive influence is evident, the study stresses that its benefits are uneven across regions and industries. The authors note that SMEs in central and western China still face limited access to advanced digital financial services, constraining their ability to reap similar productivity gains. The uneven distribution of digital infrastructure and human capital remains a barrier to inclusive growth.

The research calls for targeted policy measures to bridge these gaps. Expanding digital payment systems, improving the availability of supply-chain finance, and fostering data-driven credit markets are identified as priorities. The authors also emphasize the importance of balanced regulation to ensure that fintech development does not expose SMEs to new risks, such as fraud, cyber-threats, or market volatility.

Policymakers are encouraged to focus on strengthening the institutional environment for digital finance by enhancing legal protections for borrowers, promoting fair competition in the fintech sector, and supporting the adoption of digital tools in less developed regions. By doing so, they can ensure that fintech’s productivity-enhancing effects benefit SMEs across the board, reducing regional disparities and fostering more resilient supply chains.

The study’s findings have implications far beyond China. Many emerging economies face similar challenges in boosting SME productivity and integrating smaller firms into modernized supply chains. The authors argue that the Chinese experience demonstrates the potential of fintech to act as a catalyst for sustainable SME growth when paired with supportive policies and adequate infrastructure.