PLOS ONE

RESEARCH ARTICLE

Assessing incentives to increase digital

payment acceptance and usage: A machine
learning approach
Jeff Allen1, Santiago Carbo-Valverde1,2, Sujit Chakravorti1,3, Francisco Rodriguez-
Fernandez ID1,2*, Oya Pinar Ardic1
1 World Bank, Washington, DC, United States of America, 2 University of Granada, Granada, Spain,
3 Chakra Advisors LLC, Washington, DC, United States of America
a1111111111
a1111111111 * [email protected]
a1111111111
a1111111111
a1111111111 Abstract
An important step to achieve greater financial inclusion is to increase the acceptance and
usage of digital payments. Although consumer adoption of digital payments has improved
dramatically globally, the acceptance and usage of digital payments for micro, small, and
OPEN ACCESS
medium-sized retailers (MSMRs) remain challenging. Using random forest estimation, we
Citation: Allen J, Carbo-Valverde S, Chakravorti S,
identify 14 key predictors out of 190 variables with the largest predictive power for MSMR
Rodriguez-Fernandez F, Pinar Ardic O (2022)
Assessing incentives to increase digital payment adoption and usage of digital payments. Using conditional inference trees, we study the
acceptance and usage: A machine learning importance of sequencing and interactions of various factors such as public policy initiatives,
approach. PLoS ONE 17(11): e0276203. https://
technological advancements, and private sector incentives. We find that in countries with
doi.org/10.1371/journal.pone.0276203
low POS terminal adoption, killer applications such as mobile phone payment apps increase
Editor: Aurelio F. Bariviera, URV: Universitat Rovira
the likelihood of P2B digital transactions. We also find the likelihood of digital P2B payments
i Virgili, SPAIN
at MSMRs increases when MSMRs pay their employees and suppliers digitally. The level of
Received: January 30, 2022
ownership of basic financial accounts by consumers and the size of the shadow economy
Accepted: September 30, 2022 are also important predictors of greater adoption and usage of digital payments. Using
Published: November 2, 2022 causal forest estimation, we find a positive and economically significant marginal effect for
merchant and consumer fiscal incentives on POS terminal adoption on average. When
Copyright: © 2022 Allen et al. This is an open
access article distributed under the terms of the countries implement financial inclusion initiatives, POS terminal adoption increases signifi-
Creative Commons Attribution License, which cantly and MSMRs’ share of P2B digital payments also increases. Merchant and consumer
permits unrestricted use, distribution, and
fiscal incentives also increase MSMRs’ share of P2B electronic payments.
reproduction in any medium, provided the original
author and source are credited.

Data Availability Statement: Following the data

policy of the journal, let us state that: all the
databases needed to undertake the baseline 1 Introduction
empirical analysis in the manuscript are publicly
available in the sources described in the In 2013, the World Bank Group President announced the Universal Financial Access (UFA)
manuscript. Only the robustness check tests at the goal, which stresses that adults globally should have access to a transaction account to safely
merchant-level are not available because they store money, send and receive payments as the basic building block to manage their financial
correspond to participant (firm) privacy in the
lives. In 2016, Committee on Payments and Market Infrastructures (CPMI) and the World
survey made to obtain these data. All data sources
for the country level analysis are explained in
Bank [1] provided a framework to achieve UFA.
section 3.2. and are made publicly available by the [2] further elaborated on payments serving as a gateway to other financial services. As indi-
World Bank. viduals make several payments daily to purchase food items and other basic needs, generally,

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PLOS ONE Assessing incentives to increase digital payment acceptance

Funding: The author(s) received no specific the use of payment services is the first time an individual can potentially be introduced to the
funding for this work. regulated financial sector. Based on their needs to mitigate risks and invest for the future, indi-
Competing interests: The authors have declared viduals can then start using other financial services such as savings, insurance and credit, typi-
that no competing interests exist. cally tailored to their needs, ideally delivered responsibly and sustainably in an affordable way.
Financial inclusion has been recognized as an important policy goal internationally for more
than a decade.
Global Findex 2017 data, which is used to measure progress towards UFA, reports that account
ownership at a regulated institution has increased: in the six-year period between 2011–2017,
there were 1.2 billion new accountholders globally. Despite greater transaction account owner-
ship, challenges remain as 1.7 billion adults lack access to a basic transaction account. Progress
has also been uneven: globally, 72 percent of men and 65 percent of women have an account—
reflecting a gender gap that has remained unchanged since 2011 and 2014. Additionally, the gap
between the richer 60 percent and the poorer 40 percent, in terms of account ownership, has
remained the same throughout the period. The data shows that the unbanked are predominantly
women, poor, not well-educated and unemployed. Importantly, nonbanks are increasingly play-
ing a larger role in the provision of transaction accounts by increasing access to the unbanked.
[3] provide empirical evidence regarding the benefits of digital payments including safety,
quicker receipt of payments, and lower costs. Global Findex database also tracks how fre-
quently transaction accounts are used to make digital payments. The indicator “made or
received digital payments” is calculated based on one payment made or received with the
account owned. In 2017, 52 percent of adults globally made or received digital payments as
opposed to 42 percent in 2014. Finally, the findings of Global Findex 2017 indicate that a sig-
nificant proportion of accounts remain inactive for at least 12 months. Globally, one in five
account owners had an inactive account during the past 12 months, while in India this figure
was as high as one in two.
These findings suggest that policies that solely increase transaction account ownership are
not sufficient to increase usage of digital payments. Account ownership must be coupled with
greater opportunities for account owners to use their transaction accounts for making and
receiving digital payments. Account owners need to have opportunities to use their digital pay-
ment instruments for everyday purchases, bill payments, online payments, and government
payments. In addition, they would also benefit from digitally receiving their salaries and pay-
ments from government, businesses, and other individuals.
In this paper, we assess the effectiveness of various public and private sector initiatives
including financial inclusion, better tax collection, and adoption of new technologies on digital
payment acceptance by micro, small, and medium retailers (MSMRs) and the increase in the
number of digital payments. In 2016, the World Bank commissioned a study to analyze the
size of cash versus digital transactions made and received by MSMRs to better understand
whether there are sufficient opportunities for consumers to use their transaction accounts to
make payments at small, everyday merchants [1]. This issue was considered important because
it is through these everyday merchants that retail payment solutions become valuable to con-
sumers and use of electronic payment instruments become habitual, generating an anchor for
them in the regulated financial sector. While MSMRs’ acceptance of digital payments is impor-
tant for consumers, it is also important for these merchants to be able to make digital payments
in the form of salaries or supplier payments. Therefore, the World Bank study also looked at
business-to-business (B2B –in the form of immediate supplier payments) and business-to-per-
son (B2P) payments. In other words, achieving greater digital liquidity is the goal of many pol-
icymakers. The study estimated that MSMRs globally made and accepted USD 34 trillion
worth of payments annually, of which only 44 percent were made digitally suggesting that
there is a USD 19 trillion opportunity.

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PLOS ONE Assessing incentives to increase digital payment acceptance

We use machine learning techniques to evaluate the effectiveness of public and private sec-
tor initiatives along with technological advancements to increase the acceptance of digital pay-
ments by MSMRs and to increase the volume of digital payments at the point of sale (POS).
We identify key conditions and incentives that predict acceptance and usage of digital pay-
ments by MSMRs. Importantly, the order of implementation (or a specific combination) of
conditions and the types of incentives matter. With large amounts of data and of covariates,
we can only achieve this sequencing using machine learning. Furthermore, we do not limit our
analysis to merchant incentives but also consider incentives given to other participants in the
payment ecosystem along with improvements to the payment and telecommunication infra-
structures that promote digital payment adoption and usage.
Our dependent variables are POS terminal adoption by MSMRs needed for payment card
acceptance and the share of digital payments made to MSMRs by individuals. [4] use POS ter-
minals to study the impact of payment cards on transactional cash demand in advanced econ-
omies. They find that POS terminal adoption does decrease transactional demand. However,
in emerging and developing economies, bank account ownership is not always common.
Unfortunately, POS terminal adoption only captures the acceptance of payment cards. How-
ever, the volume of digital payments captures all forms of digital payments. While the volume
of digital payments does not directly capture the adoption of acceptance infrastructure, it does
indirectly capture the adoption of merchants of digital payments beyond card payments.
Given the large number of covariates in our cross-country dataset, we use machine learning
techniques to identify strong predictors without imposing a structure on the data as is the case
for partial or structural standard econometric models. We analyze 81 country-level variables
from 106 countries and 111 merchant-level variables for 576 merchants across seven countries.
Using conditional inference trees, we identify combinations of predictors that increase the
likelihood of increased acceptance and usage of digital payments. Finally, using causal forest
estimation, we quantify the impact of different incentives on acceptance and usage of digital
payments by comparing countries that have implemented to those that did not.
Our main results are as follows. Using random forest estimation techniques, we identify
several factors that are strong predictors for greater POS terminal adoption and higher shares
of person-to-business (P2B) electronic payments at MSMRs such as information and commu-
nication technologies (ICT) infrastructure, level of transaction account ownership in the econ-
omy, fiscal incentives, the size of the shadow economy, digitization of payment chain, and
introduction of “killer applications.” In our sample, a killer application is defined as a success-
ful mobile application that enables digital payments.
Using conditional inference trees, we are able to study these factors and predict a sequence
of incentives or initiatives that enables greater acceptance and usage of digital payments. For
example, if a country is above the median in ICT infrastructure and killer applications are
implemented or the proportion of payment service agents are high, the share of P2B MSMR
digital payments are predicted to be up to 60 percent higher.
Using causal forest estimation, we consider incentive implementation in different countries
as a quasi-natural experiment. While some caveats should be considered as this is not a purely
randomized experiment and, therefore, our results cannot be directly extrapolated to experi-
ences in jurisdictions not considered in our sample, the estimated treatment effects reinforce
the idea that incentives to electronic payment acceptance (EPA) may have significant eco-
nomic effects. In our setting, the treatment effects consisting in evaluating a number of coun-
try-level policies at merchant level. Some of these policies (e.g. cash limits) are applied in
various countries while others are just applied in specific countries. Hence, our approach is
connected to a strand of research that uses causal forest to evaluate cross-country public poli-
cies, while the impact is evaluated at the individual level. In particular, we find that fiscal

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PLOS ONE Assessing incentives to increase digital payment acceptance

incentives, killer applications along with government policies to limit cash transactions or man-
date digital payments for certain types of transactions are effective to increase merchant accep-
tance and usage of digital payments. In addition, we find that when killer applications are
introduced in countries that do not have mass adoption and usage of payment cards, mobile pay-
ments are able to leapfrog payment cards as the dominant digital payment instrument at the POS.
This article is structured as follows. In the next section, we discuss the current literature on
payment merchant acceptance and usage. In section 3, we discuss the data and our empirical
approach. In section 4, we discuss our results. In section 5, we discuss the policy implications
of our findings. In section 6, we offer some conclusions. Section 7 discusses some limitations
of the study.

2 Literature review
Our paper contributes to various strands of the payments and non-payments literatures. Given
that the market for payments has two distinct end-users—consumers and merchants—pay-
ment networks or platforms need to bring both sides on board for a transaction to occur. This
aspect of payment services is often referred to as a two-sided market [5, 6]. Generally, incen-
tives on the consumer side have been greater than the merchant side, however incentives to
merchants continue to increase especially for MSMRs.
For the most part, this literature focused on payment cards. We extend the two-sided mar-
ket literature by looking at much broader policy levers than regulating payment card fees, the
structure of card networks, and the ability of merchants to pass on payment costs to consumers
by imposing surcharges or discounts based on the payment instrument used.
As discussed, consumer access to transaction accounts and digital payment instruments
continues to increase around the world. Several empirical studies focus on the how consumers
choose to use digital payments instead of cash and checks [7–9]. [10] find that transaction size
and consumer demographic factors determine how consumers pay at grocery stores. In some
countries, payment platforms bundle goods and services to encourage digital payments at the
POS, e.g. Alipay and WeChat Pay in China [11].
Empirical research on the merchant side is more limited. As noted by [12] most studies
have ignored or only tangentially consider merchant acceptance. These authors stress the
interactions between acceptance and demand. They highlight the challenges for payment plat-
forms to attract critical mass of consumers and merchants. However, theoretical research on
why merchants accept payment cards has been growing including the ability of merchants to
increase sales to cash and credit-constrained customers and reduce the costs of safekeeping
and transporting cash [13, 14].
There have been some payment adoption and usage studies that analyze how incentives
affect both consumer and merchant usage of digital payments. Some of these incentives
include merchants to steering consumers with differentiated prices based on payment instru-
ment used or by payment service providers offering usage rewards such as cash back. For
example, [15] reviews some evidence that supports consumers responding more to merchant
surcharges than to discounts depending on the payment instrument used. [16] also examine
how U.S. merchants used their ability to offer price discounts and other incentives to steer cus-
tomers to pay with methods that are less costly to merchants. While not as common as before,
some payment networks do not allow merchants to surcharge their branded payment instru-
ments. Various studies have also looked at the impact of card rewards issued by issuers to
increase card payments especially for credit card purchases [17, 18].
Other consumer steering incentives have been related to the adoption of mobile payment
technology. For example, the case of rewards and/or cash back offered by card companies as

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PLOS ONE Assessing incentives to increase digital payment acceptance

well as other NFC payment providers (Apple Pay, Samsung Pay, and Android Pay) for adop-
tion and usage of mobile payments [19] find that these incentives have a positive effect on the
decision to adopt NFC mobile payments. While these and other similar incentives may provide
some interesting insights, more evidence would be needed on wider (public policy or private-
public partnerships) attempts to increase merchant acceptance and consumer usage. Our
study also attempts to complement this wider view on incentives especially merchant
incentives.
We also contribute to the empirical literature on technology diffusion of new payment tech-
nologies. Technology has lowered costs, increased access, and expanded features. Mobile
phone technology can be leveraged to make payments. Mobile phone technology along with
quick response (QR) codes significantly reduce the cost of payment acceptance from tradi-
tional payment card technologies. In some cases, these technologies allow consumers and mer-
chants to adopt mobile payments instead of payment cards. [20] argue that mobile payments
can be card-complementing or card-substituting. In countries with high adoption of payment
cards and card acceptance infrastructure, mobile payments complement cards whereas in
countries with low adoption of cards, mobile payments substitute for card transactions. [20]
construct a model where payment technologies arrive sequentially. Under certain cost assump-
tions, using simple empirical analysis, they explain why advanced economies have not
embraced mobile payments unlike developing countries.
Additional incentives may be necessary to reduce the reluctance to use digital payments
that are not due to the direct cost of acceptance. The reluctance to use digital payments may be
due to non-payments related reasons such as tax evasion. Using a merchant survey of Indian
small merchants in Jaipur, [21] considers other factors that prevent adoption of digital pay-
ments by merchants, including demand-side factors and taxes. Some researchers have also
investigated a more direct intervention such as restricting cash use to reduce the size of the
shadow economy or mandating electronic payments for certain types of transactions [22, 23].
Finally, recent academic studies suggest that structural, as well as policy-related factors,
such as channeling government benefit payments through transaction accounts, play an
important role in improving financial inclusion [24]. Account ownership is not only critical to
access formal payments [25], it also reduces corruption [26], and increases consumption and
productive investment of entrepreneurs [27]. Additionally, shifting payments from cash to
those using transaction accounts allows for more transparent and efficient payments especially
for payments between individuals and governments [3]. Government interventions such as
demonetization intended to reduce the shadow economy may have had positive implications
for adoption for digital payments [28].

3 Empirical methodology and data

In this section, we describe our empirical approach and our dataset. We use machine learning
algorithms to identify predictors, provide insights into sequencing and interactions of various
incentives, and quantifying treatment effects of individual incentives. We also describe how we
combine different sources to create our dataset.

3.1 Empirical aim and approach

Most existing studies in the area of digital financial services use discrete choice models to
examine consumers’ preferences for various types of payments and other financial services
[29–31]. However, recent studies have shown that capturing changes in behavior from tradi-
tional choices to digital options involves several factors, including socio-economic, behavioral
and institutional characteristics [32]. These multifaceted patterns suggest that a

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PLOS ONE Assessing incentives to increase digital payment acceptance

multidisciplinary approach combining economic, behavioral and data analytics is required to

address such changes [33]. Machine learning methods are powerful data analysis tools that
hold promise for generating new insights into payment behavior [34–36]. [37] surveys a num-
ber of methods used in studies of changes in demand behavior and concludes that machine
learning techniques are effective and, often, more powerful for this type of analysis.
The advantages of a machine learning approach where there are many potential influences
at the macroeconomic and microeconomic levels, such as digital payments, has increased its
use for such analysis. For example, [38] uses a random forest model to discover hidden pat-
terns that may be valuable for decision-making in bank marketing. Machine learning
approaches are also employed to estimate consumer preferences for technology products [39],
to examine travel choices [40], and, more generally, to model consumer response [34].
Building on this growing literature, our empirical analysis employs machine learning tech-
niques to analyze a combination of payment ecosystem (macro) and payment system partici-
pant specific (micro) factors. Payment ecosystem factors include improvements to payment
and nonpayment infrastructure, national ID programs, technological advancements in com-
munication and computing technologies, and policies to reduce the shadow economy. Pay-
ment system participant factors include government policies to increase transaction account
ownership, payment service provider (PSP) incentives, fiscal incentives to consumers and mer-
chants to adopt digital payments, and technological advances that allow PSPs to provide pay-
ment services to more consumers and businesses often at lower costs that impact electronic
payment acceptance (EPA) and usage. These incentives are defined in line with previous
World Bank research [41].
The machine learning approaches that we employ carry three primary advantages over tra-
ditional parametric statistical methods. First, machine learning is a data-driven, bottom-up
analytical approach or commonly referred to as “let the data speak” approach. It requires no
preestablished or strict assumptions regarding the structure of the data or the functional rela-
tionships. Second, because we rely on tree-based machine learning mechanisms, our analysis
may offer some insights on combinations of incentives and decision sequencing. While stan-
dard parametric models in econometrics (e.g. multilevel logit and propensity score matching)
can identify behavioral patterns among clusters of individuals of firms, they are unable to offer
predictions based on a sequence of actions. In other words, for some of the results obtained,
the order of implementation (or a specific combination) of factors matters. In our context, pre-
vious empirical analyses and the policy experience in several countries seem to suggest that
some actions or conditions can only be effective in promoting merchant EPA when other
actions and conditions are already in place. For example, technology such as mobile phones or
QR codes or payment infrastructure such as fast payment or card networks as a pre-condition
for some payments to be accepted. However, when the number of actions and conditions is
large (as in our setting) machine learning can be used to try to find sequences that increase
EPA. Taken together, these first two advantages yield an analytical approach that uncovers pat-
terns in real world interactions that induces greater adoption of merchant digital payment
acceptance infrastructure and digital payment usage than what could be captured with a top-
down statistical model that imposes a global structure on the data. Such an approach is also
important to extract policy lessons for further merchant acceptance of electronic payments in
countries with current low levels of acceptance as the global treatment of the data somehow
elucidates a number of benchmarks or paths for these countries to follow. Given the treatment
of data in our machine learning approach, it would not make much statistical sense to conduct
specific sub-sample analyses for a smaller set of countries (e.g., low-income countries) as vari-
ability within a single group would not provide much information on benchmarking and
potential routes for merchant acceptance development. Lastly, from a predictive standpoint,

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our machine learning approaches are more accurate than traditional econometric models used
in the banking and payments literature.
However, the primary disadvantage of machine learning is that it typically emphasizes pre-
diction over inference. Economists have traditionally been interested in studying what factors
cause a change in a dependent variable as opposed to what factors predict the movement in a
dependent variable. In our analysis, we are not only interested in what factors or preconditions
predict digital payment acceptance and usage but also what incentives would change the
behavior of merchants and consumers to increase their usage and adoption of digital pay-
ments. We partially overcome this limitation primarily because of data limitations by utilizing
three complementary machine learning models, the respective features of which allow us to
draw inferences about the drivers of digital payment acceptance. Ideally, we would like to use a
panel dataset where we could also study adoption over time within a country. Also as men-
tioned above, we would prefer greater merchant heterogeneity across the incentives that we
study.
Specifically, our analysis follows a three-step process. In the first step, we use the random
forest algorithm [42] to analyze and narrow down the list of variables that are most important
for predicting our dependent variables. For digital payment acceptance, we use POS terminal
adoption because merchants generally must have POS terminals to accept payment cards.
Unfortunately, we do not have reliable data for non-card merchant acceptance infrastructure.
To account for the growth of non-card-based payments, we also use MSMRs’ share of P2B dig-
ital payments. While not a direct approach, the share of digital payments also captures the
adoption of payment infrastructure because acceptance infrastructure must be in place before
payments can be made. In addition, share of digital payments allows us to capture the usage of
digital payments which is the eventual goal of policymakers and digital PSPs.
In the second step, we use the most important variables identified by the random forests to
build conditional inference trees [43], which more specifically identify the sequential paths of
adoption. In other words, we identify the likelihood of greater POS terminal adoption and
usage based on a combination or a sequence of factors. These conditional inference trees iso-
late important sets of factors for prediction.
In the last step, we leverage the recently developed causal forest [44] and [45]—an adapta-
tion of random forests for more inferential purposes—to estimate treatment effects of relevant
incentives on payment acceptance. Causal forests are frequently implemented as randomized
experiments in a controlled sample. In these cases, causal forests may assist to sort the infor-
mation and calibrate the average treatment effects when the number of covariates is large. For
example, [46] explores the impact of a randomized implementation of a microcredit program
on the money borrowed and pension plan eligibility. While randomized experiments may be
applied in the assessment of public policies, they cannot always be implemented. This occurs
when the experimentation protocol is too expensive or complex. However, causal forests can
also be used (with the necessary interpretation caveats) in the context of quasi-natural experi-
ments. In particular, if some policies are exogenously implemented and identified as a poten-
tial shock or driver of change of certain behavior. We study the effects of groups that are
treated or receive a type of incentive to increase EPA versus groups that do not receive that
incentive. For the country-level sample, we study the impact of incentives on a treated country
and on an untreated country. For the merchant-level sample, we study the impact on mer-
chants within a treated country and merchants in an untreated country (see [47], on the use of
causal forest to evaluate policies at the country-level).
In exploring the mechanisms underlying digital payment acceptance and usage, we take a
general-to-specific approach. That is, we first analyze a “general mechanism,” that consists of
identifying and rank the predicting power of country-level indicators to identify incentive

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mechanisms broadly. In particular, we strive to explain the absolute or conditional weight of

some factors on the success of digital payment acceptance and usage incentives. This exercise
provides a general framework with respect to successful implementation steps for different
incentives. From a data perspective, the country level data allows us to study 106 countries
rather than only the seven countries that we have merchant survey data for.
Second, in analyzing a merchant-level sample, we explore a more “detailed mechanism,”
which describes the individual path followed by merchants in accepting various forms of pay-
ments and identifies the role of some incentives specific to merchants. As with the country-
level analysis, the merchant level analysis investigates the effects of incentives on EPA. The fol-
lowing subsections expand on the data, we use the three sequential analytical approaches that
we employ—the random forest, the conditional inference tree, and the causal forest.

3.2 Data
In this subsection, we describe how we construct our dataset. We combine a cross-section of
country level explanatory variables with merchant survey data to identify and quantify the
impact of incentives on electronic payment acceptance (EPA) infrastructure and usage.
3.2.1 Country-level data. The country-level data are cross-sectional and mostly from
2014 with some exceptions because data was not available for 2014. However, we do not believe
these differences will affect the identification of merchant EPA. While our primary response
variables for both the country-level and merchant-level data are POS terminal adoption and
MSMRs share of digital payments, they are measured differently. At the country-level, we use
POS terminals per 100,000 adults at year-end 2014, which we obtain from the World Bank’s
Global Payment System Survey (GPSS). As mentioned before, a natural limitation of modeling
POS terminals is they focus primarily on card-based payments and do not capture the emerging
non-card-based methods of electronic payments. P2B electronic payments, however, do capture
all forms of electronic payments. For MSMRs’ share of P2B digital payments at the country-
level, we use a country’s estimated MSMRs’ share of digital payments. [1] (hereafter, the “Sizing
Study”) estimated the MSMRs’ share of digital payments for mid-to-late 2015.
As discussed further below, the Sizing Study is based on primary research in seven repre-
sentative countries. The research included in-person trade interviews and pulse surveys to
complement existing research and data collection by Euromonitor International. Detailed
information on this survey is provided in [1]. The trade interviews, which were conducted
with government agencies, retail associations, financial institutions, and non-bank financial
service providers, provide a top-down perspective of the retail payments market. The pulse
surveys, which were conducted with individual retailers and suppliers, provide a bottom-up
perspective of the retail payments market. Information from both sources were consolidated
to produce country-level estimates for the value and volume of P2B, business-to-business
(B2B), and business-to-person (B2P) payments by MSMRs such as paying workers. In our
dataset, B2B payments include immediate supplier payments only, and not the entire supply
chain. The estimates for the seven representative countries were paired by Euromonitor with
selected assumptions and other macroeconomic and financial data to estimate these variables
for 161 other countries using simulation methods. Simulations of the Sizing Study conducted
by Euromonitor are explained in Annex A4.3 of [1]. Several models were used for the simula-
tion of the main variables. The 30 best performing models based on R2 were used to predict an
outcome variable. Then, these 30 models are evaluated for the out-of-sample fit. The predic-
tions from these 30 models for one outcome variable are then averaged to construct the final
prediction for that outcome variable, thereby relying on out-of-sample predictions of the best-
fitting 30 models for each of the 61 variables to be predicted.

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As already indicated, the country-level share of electronic P2B payments from the Sizing
Study serves as one of our two primary country-level response variables. We use the B2B and
B2P electronic payment estimations as predictor variables. We consider the whole MSMR pay-
ment chain because it has important implications for incentive design and effectiveness. In
particular, incentives may encourage consumers to use bank accounts rather than cash alterna-
tives. Digital payment acceptance by MSMRs is a critical factor to allow consumers to use digi-
tal payments. At the same time, MSMRs may also benefit from incorporating digital payment
infrastructure to pay salaries and suppliers digitally. Hence, policies such as mandated digital
payments for MSMR B2B and B2P payments can be strongly connected to P2B digital
payments.
The other country-level predictor variables are drawn from various sources. The aim is to
obtain as much information as possible on potential determinants of digital payment accep-
tance and usage to feed the random forest algorithm and ultimately narrow down a core group
of predictors. With some exceptions, most of our observations are from 2014, corresponding
with the Sizing Study timeframe. A first reference for these variables is the GPSS, which sur-
veys national and regional central banks and monetary authorities on the status of payment
system development (e.g., e-money accounts per 1,000 adults and agents of payment service
providers per 100,000 adults).
A number of variables are also drawn from the World Bank’s Global Findex database. The
database collects information on how adults save, borrow, make payments, and manage risk
through nationally representative surveys of more than 150,000 adults in over 140 economies.
The data employed are primarily from 2014. We also use the 2011 Findex database to compute
the change from 2011 to 2014 for some variables (in particular, those reflecting payment
usage).
A third database that we use in our analysis is the Global Financial Inclusion and Consumer
Protection (FICP) Survey from the World Bank, which tracks the prevalence of key policy,
legal, regulatory, and supervisory approaches for advancing financial inclusion and consumer
protection, including national financial inclusion strategies, the issuance of e-money by non-
banks, agent-based delivery models, simplified customer due diligence, institutional arrange-
ments for financial consumer protection, disclosure, dispute resolution, and financial
capability. Financial sector authorities in 124 jurisdictions—representing 141 economies and
more than 90 percent of the world’s unbanked adult population—responded to the survey.
The data were not available for 2014 and the closest date that they were available was 2017. We
believe these variables are quite structural and the time difference does not affect our results.
See S1 Appendix for a detailed reference on the year corresponding to each variable.
We also use data from the Financial Access Survey (FAS) compiled by the International
Monetary Fund (IMF). The FAS provides data on access to and use of financial services aimed
at supporting policymakers to measure and monitor financial inclusion and benchmark prog-
ress against peers. FAS covers 189 countries spanning more than 10 years and contains 121
time-series on financial access and use. We use FAS 2014 data in our analysis.
We also use two other databases for very specific information on information technology
development (the ICT Development Index, IDI, provided by the United Nations’ International
Telecommunications Union, ITU) and crime level information (from the United Nations
Office for Drug and Crime, UNDOC).
In the end, 81 variables are selected for 106 countries, resulting in 8,586 cross-section data-
points. S1 Appendix provides the list of countries and variable definitions.
3.2.2 Merchant-level data. Merchant-level data is also cross-sectional and allows us to
study merchant heterogeneity within MSMRs while allowing for some country heterogeneity.
The merchant-level data is based on the Sizing Study primary research pulse surveys, which

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are introduced above. Primary research was conducted in seven countries in 2015—Colombia,
France, Kenya, Lithuania, Morocco, Pakistan, and Turkey. Similar to our constructed country-
level dataset, our two response variables capture POS adoption and P2B electronic payments.
However, because these are merchant-level indicators, they take on different forms from the
country-level data. The POS variable is a binary (0/1) indicator capturing whether an individ-
ual merchant has a POS terminal or not. The P2B electronic payments indicator captures the
estimated share of P2B payments made electronically at the individual retail establishment.
The Sizing Study database contains rich retailer-level data, which we use as predictor variables.
These include indicators such as retailer size, customer profiles, merchant and consumer prefer-
ences, and whether retailers are part of a larger network, among other characteristics. As with the
country-level data, we also use retailer-level data on electronic B2B and B2P payments as predic-
tors. Further, we combine the merchant-level information with a number of country-level indica-
tors similar to those employed in the country-level sample. In total, the merchant-level database
consists of 576 merchants and 111 variables, resulting in 63,936 cross-section and time series data-
points. All the variables are defined in S1 Appendix. The number of variables in the appendix
could be lower as some merchant-level variables are aggregated at the national level to be used in
the country-level analysis and some national-level variables are used as control variables in the
merchant level analysis. While the merchant-level data corresponds to 2015 and the country-level
data to 2014 we believe a one-year difference is not relevant for our empirical analysis.
We use the merchant-level data for two primary empirical purposes. First, we focus on the
detailed merchant-level information for the seven countries to check if the machine learning
results from the microeconomic structure are similar to those obtained at the country level.
Second, we add information on policy incentives for the seven countries to analyze their
impact on digital payment acceptance and usage.
In matching the different sources of information for the country-level and merchant-level
data, we were particularly careful in using homogenous measures. In order to make the eco-
nomic interpretations of the results more tractable and, at the same time, ensuring sufficient
heterogeneity within the country- and merchant-level data, all quantitative variables in the
database were transformed into four-level variables with values 1, 2, 3 and 4 corresponding to
percentiles 0-25th (low), 25th-50th (lower mid), 50th-75th (upper mid) and 75th-100 (high).
Additionally, a number of variables contained some missing or not available (NA) values for
some observations. However, the different algorithms employed in the machine learning tech-
niques deal well with it treating them as missing values.

3.3 Identifying variable importance using random forest

The random forest [42] is a tree-based, recursive partitioning machine learning approach.
Within the forest, each tree depends on the values of a random vector sampled independently
and with the same distribution for all other trees. The algorithm splits trees with the goal of
reducing impurity between clusters of observations. Impurity is generally measured by infor-
mation content metrics, such as the Gini score and residual sum of squares. Ultimately, the
random forest gathers hundreds or thousands of trees to make predictions.
In predicting POS terminal adoption and share of P2B electronic payments at both the
country- and merchant-level, we feed the random forest models with all the country- and mer-
chant-level predictor variables, respectively (see S1 Appendix). This approach is common
when data comes from surveys specifically designed to examine changes in banking and pay-
ment instruments [48, 49].
With the random forest estimation, our primary goal is to identify the variables that are
most predictive of digital payment acceptance and usage. As explained further in the results

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section, the algorithm generates variable importance metrics for the model’s predictor vari-
ables. These model diagnostics provide inferential value, but they lack directionality and eco-
nomic interpretation, as they are not in the units of response variables. Thus, perhaps the most
important function of the random forest is that it helps us narrow down a core group of vari-
ables that are most predictive of digital payment acceptance and usage. We are able to use
these predictors to more thoroughly explore the drivers of digital payment acceptance and
usage by using the conditional inference tree and the causal forest.

3.4 Decision sequencing with conditional inference trees

After identifying predictors using random forest algorithms, we use the characteristics and
determinants with the largest discriminant power to build a decision tree for each dimension
by estimating a conditional inference tree [43]. This technique estimates a regression relation-
ship through binary recursive partitioning in a conditional inference framework. In particular,
the algorithm tests the global null hypothesis of independence between each of the input vari-
ables and the response and selects the input variable with the strongest association to the
response. The algorithm then implements a binary split in the selected input variable and
recursively repeats this process for each of the remaining variables. Importantly for our pur-
poses, the conditional inference tree shows the sequential combination of factors that explain
the EPA and usage decision process. This approach does not require any linearity assumptions,
which is important because many of the digital payment acceptance and usage determinants
could be related nonlinearly.
The conditional inference tree is similar in many ways to typical regression and classifica-
tion trees, including those underlying random forests, in that it is a tree-based, recursive parti-
tioning machine learning approach. A key difference, though, is that it is more statistical in
nature, since it uses chi-square tests of independence to determine tree splits. As its name
implies, the conditional inference tree is more geared toward “inference” than other tree-
based methods. This technique provides insights into examining the tree structure in addition
to focusing on predictive accuracy.

3.5 Estimating impact of incentives with causal forest estimation

Since machine learning models have not, historically, been designed to estimate causal effects,
a new field of study has emerged over the last few years that combines the advances from
machine learning with the theory of causal inference [50]. The aim of these techniques is to
complement, rather than to serve as a substitute for, traditional machine learning methods, by
helping researchers leverage the data-driven nature of machine learning to estimate causal
effects [51, 52]. The main advantage of causal machine learning is that it can be used after the
modeling phase in order to confirm some of the relations between predictors and the response
variables.
In our context, by employing a causal learning method, we aim to examine the impact of
incentives or conditions with the largest predictive power on the digitalization process. In a
broad sense, it consists of comparing an outcome in a treated group (e.g., countries/merchants
exposed to an incentive) with an untreated group (e.g., countries/merchants not exposed to an
incentive). This departs to some extent from the sampling and treatment analysis in field
experiments where sample selection and treatment implementation is under the control of the
researchers, using randomization. In our setting, the treatment is associated with a quasi-natu-
ral experiment as we can combine a sample of merchants in different countries where some
EPA incentives have been implemented as opposed to other countries or sub-samples of mer-
chants with no access to such incentives. While the extension of our results to other

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jurisdictions not considered in our analysis should be done cautiously, we believe the causal
forest analysis may help understand the impact of the incentives and conditions that impact
EPA and usage controlling for a large number of covariates at both the country and the mer-
chant level.
Among the recent methods developed in the causal machine learning literature, causal for-
est has gained particular relevance [44, 51, 52]. [53] shows that causal forests perform consis-
tently well across different data generating processes and aggregation levels. The algorithm
allows for a tractable asymptotic theory and valid statistical inference by extending the random
forest algorithm. Methodologically, causal forests maintain the main structure of random for-
ests, including recursive partitioning, subsampling, and random split selection. However,
instead of averaging over the trees, causal forests allow for the estimation of heterogeneous
treatment effects [45] by identifying how different treatments (e.g., incentive vs no incentive)
affect the outcome (e.g., digital payment acceptance and usage). One important requirement
for a proper identification is the so-called ‘honesty’ condition. This is the basic idea is that you
cannot use the same outcome data to both partition the tree and estimate the average impact.
This is particularly important when, rather than the standard randomization of samples, we
use data to explore an exogenous change (i.e. policy) on a number of subsamples [52]. The
‘honesty’ condition is satisfied in our sample.
Compared to a normal decision tree, the causal tree uses a splitting rule that explicitly bal-
ances two objectives: (1) finding the splits where treatment effects differ the most; and (2) esti-
mating the treatment effects most accurately. In order to obtain consistent estimates of the
treatment effects (in our case, the features that may have an impact on digital payment accep-
tance and usage), the algorithm splits the training data into two subsamples: a splitting sub-
sample and an estimating subsample [44, 53]. The splitting subsample is used to perform the
splits and grow the tree, while the estimating subsample is used to make predictions. All obser-
vations in the estimating subsample are dropped down the previously grown tree until they fall
into a terminal node. Ultimately, the prediction of the treatment effects is given by the differ-
ence in the average outcomes between the treated and the untreated observations of the esti-
mating subsample in the terminal nodes. [45] provide a full mathematical explanation on how
causal forests are built for causal inference.
Using this empirical methodology, we are able to examine the impact of those features with
the largest predictive power on digital payment acceptance and usage. All analyses are carried
out using the R package grf [54]. In running the algorithm, in the case of the country-level
sample, we take a conservative approach by assuming that the level of digital payment accep-
tance and usage can be arbitrarily correlated within a country. Hence, the errors are clustered
at the country-level.

4 Results
In this section, we discuss the results of the three empirical parts of our analysis—random for-
est, conditional inference trees, and causal forest.

4.1 Random forest results

Employing the random forest algorithm, we identify the best predictors for POS terminal
adoption and MSMRs’ share of P2B digital payments. From over the 190 factors, we identify
14 variables with the largest predictive power of MSMRs adoption of POS terminals and con-
sumer usage of digital payments at MSMRs. The random forest algorithm generates a variable
importance ranking. The relative statistical importance of each factor in predicting the impact
on the dependent variables is estimated. We measure the importance of each predictor by

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mean decrease in accuracy and mean decrease in Gini [55]. The mean decrease in accuracy
reflects the mean loss in accuracy when each specific variable is excluded from the algorithm.
Therefore, the determinants and characteristics with the greater mean decrease in accuracy are
the most relevant. Additionally, the mean decrease in Gini is a measure of how each feature
contributes to the homogeneity between the decision trees used in the resulting random forest.
This analysis provides eight variable importance plots from multiplying two accuracy meth-
ods (mean decrease in accuracy and mean decrease in Gini) by two dependent variables (POS
terminal adoption and share of P2B electronic payments) covering two samples (country-level
and merchant-level). For simplicity, Table 1 offers the factors with the largest prediction
power for the two dependent variables that are consistently shown at the country- and mer-
chant-level sample. The detailed variable importance plots are available upon request. In addi-
tion, Table 1 shows the predictors with mean decrease in accuracy larger than 10 percent and
mean decrease Gini larger than 2 percent. Furthermore, our selection is consistent with the
procedure proposed by [3]. It consists of 1) running the random forest algorithm and returns
the mean decrease in accuracy and the mean decrease in Gini of each variable, 2) ranking
every variable using the mean decrease in accuracy and the mean decrease in Gini,

Table 1. Main predictors of POS adoption and share of P2B electronic payments (combined results from the country-level and merchant-level samples).
Response variable Category Predictor Variable importance confirmed in:
Country-level sample Merchant-level sample
POS Merchant Share of P2B electronic payments ✓ ✓
Terminal Payment Merchants’ beliefs about consumer payment n.a. ✓
Adoption Chain preferences
Percentage of wages paid electronically at the n.a. ✓
merchant level
Infrastructure Information and Communication Technologies ✓ ✓
Account ownership ✓ ✓
National ID ✓ ✓
Institutional Merchant fiscal incentives ✓
and Policy National financial inclusion strategy ✓ ✓
Wages paid into a transaction account ✓ ✓
Shadow Economy ✓ ✓
Share of Merchant POS terminal adoption ✓ ✓
P2B Payment Merchants’ beliefs about consumer payment n.a. ✓
Electronic Chain preferences
Payments Percentage of wages paid electronically at the n.a. ✓
merchant level
Instruments Previous card penetration ✓ ✓
Infrastructure Information and Communication Technologies ✓ ✓
Institutional and Wages paid into a transaction account ✓ ✓
Policy Killer app ✓
Access Points POS adoption ✓ ✓
Agents of payment services providers ✓ n.a.
Out-of-sample accuracy (70/30% split) of the random forest
POS adoption 89.91%
Share of P2B electronic payments 92.14%

Note: Predictors selected from the variable importance plots obtained from the random forest algorithm. The grouping of the variables follows [58].
“n.a.” notes that the variable was not available for that sample

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respectively, 3) scoring each variable, 4) computing the total score of each variable, 5) reorder-
ing them by the total score.
For POS terminal adoption, the main predictors correspond to three variable groups: mer-
chant payment chain, ICT infrastructure and account ownership, and institutional and policy
actions. Merchant payment chain includes the MSMRs’ share of P2B digital payments, mer-
chant perceptions on consumers payment instrument preferences, and the percentage of
wages paid digitally at the merchant level. For actual usage of P2B digital payments at MSMRs,
the merchant’s perception of consumer willingness to use payment cards, and merchant usage
of digital payments to pay their workers are the main predictors of greater POS terminal adop-
tion and greater share of digital payments. In addition, we might expect that over time, as the
total MSMR’s share of P2B payments increases, more MSMRs would adopt POS terminals
given the popularity of payment cards. However, in some countries, digital payments not
requiring POS terminals have leapfrogged payment cards.
For infrastructure, our results suggest that ICT infrastructure, transaction account owner-
ship, and national ID programs are strong predictors of POS terminal adoption. ICT infra-
structure increases the ability to open transaction accounts especially remotely and access
accounts to make digital payments. Because debit cards are linked to transaction accounts,
account ownership is necessary for the adoption of debit cards by both consumers and
MSMRs. Not surprisingly, national IDs are a strong predictor of POS terminal adoption
because IDs enable widespread ownership of transaction accounts which are necessary for
consumer card adoption which is a critical factor for merchants when deciding to install POS
terminals.
We also find institutional and policy actions taken by policymakers and the size of the
shadow economy are important predictors of POS terminal adoption. Our empirical results
regarding the impact of the shadow economy are robust to the use of some alternative mea-
sures of economic informality. In particular, our results remain very similar when we use alter-
native indicators of informality as the informality measures based on dynamic general
equilibrium models and on the combination of multiple indicators, as provided by [56]. Corre-
lation across the 106 countries in our sample between our shadow economy metric and these
economic informality indicators ranges from 87 percent to 89 percent. Public authorities have
implemented financial inclusion programs to increase transaction account ownership often
with access to debit cards. Fiscal incentives for merchants are also strong predictors for greater
POS terminal adoption. Furthermore, payment of wages into transaction accounts is also a
strong predictor of greater adoption of POS terminals by MSMRs. Finally, the size of the
shadow economy is also a strong predictor MSMR POS terminal adoption. The larger the size
of the shadow economy the lower the likelihood of POS terminal adoption.
We also identify strong predictors of the MSMRs’ share of P2B electronic payments of
which four of them are the same for POS terminal adoption. We categorize these predictors
into four groups: merchant payment chain, payment instrument developments, ICT infra-
structure and account ownership, policy variables, and access points. In the MSMR payment
chain category, three variables are strong predictors of the MSMRs’ share of P2B electronic
payments: MSMRs’ beliefs about consumer payment preferences, the percentage of the total
value of electronic wage payments, and the proportion of the electronic payments made to
suppliers. As discussed before, as MSMRs become more digitally liquid, they will tend to adopt
digital payments for all incoming and outgoing payments. Given that cards are still a popular
digital payment, POS terminal adoption continues to be a strong predictor of MSMRs’ share
of P2B digital payments.
In the payment instruments group, previous (debit and credit) card penetration (measured
as the penetration in 2011) are strong predictors of greater the share of MSMRs’ P2B electronic

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payments. This result suggests that consumers may require time to change their payment hab-
its and merchants will install POS terminals as consumer demand increases over time. There
may also be spillover effects between some merchant sectors into others. For example, in many
countries, high-end merchants and merchants located in tourist locations are likely to be early
adopters of payment cards. As consumer and merchant awareness of digital payments
increases, the adoption of POS terminals by other types of MSMRs may also increase.
As expected, the level of development of ICT infrastructure is a strong predictor for the
MSMRs’ share of P2B digital payments. This result is more general than the result with POS
terminal adoption because usage of noncard digital payment instruments is included. In the
future, we would expect that payment cards will continue to face greater competitive pressure
from alternative payments such as those based on fast payment networks and closed-loop digi-
tal payment networks.
In the policy and access points categories, wages being paid in a transaction account, pres-
ence of a killer app, POS terminal adoption, and presence of agents for payment service pro-
viders are strong predictors for MSMR P2B digital payments. This result suggests that there
are adoption and usage synergies between digital payments across the MSMRs’ payment chain
even if the payment instruments themselves may differ. In addition, workers that are receiving
payments digitally may prefer to pay digitally at MSMRs if given the opportunity.
One key finding is that each of the dependent variables is a predictor for the other depen-
dent variable. In the case of MSMRs’ share of electronic P2B payments, POS terminal adoption
provides a means to accept payment cards, the most popular digital payment option at
MSMRs during our sample period. For predicting POS terminal adoption, the MSMRs’ share
of P2B electronic payments is a strong predictor. The result can be interpreted as a confirma-
tion of the feedback mechanism, whereas POS adoption increases, more MSMRs adopt POS
terminals. In other words, as more MSMRs install POS terminals, other MSMRs also adopt
because if they do not, they may lose business to MSMRs that accept digital payments. How-
ever, as new digital payment instruments that do not rely on POS terminals have greater mar-
ket penetration, we would expect this effect to lessen.

4.2 Conditional inference tree results

While the random forest estimation techniques identified predictors in isolation, conditional
inference trees allow us to study how a combination of factors and their sequence increase the
likelihood of POS terminal adoption and MSMRs’ digital share of P2B payments. Based on the
predictors from the variance importance analysis, we estimate conditional inference trees that
identify the interactions among predictors and their sequences.
An example of a conditional inference tree is shown in Fig 1. In this example, we observe
that if MSMRs believe that consumers prefer electronic payments and percent of wages paid
electronically is greater than 70 percent, the likelihood of MSMR POS terminal adoption is 70
percent. Alternatively, if MSMRs believe that consumers do not prefer digital payments and
less than 40 percent of wages are paid electronically by MSMRs, the likelihood of MSMR POS
terminal adoption is only 10 percent. If consumers do not prefer electronic payments, the per-
centage of wages paid digitally is greater than 40 percent and if long-term fiscal incentives are
implemented, the likelihood of MSMR POS adoption is 60 percent suggesting the importance
of fiscal incentives especially in the absence of merchant beliefs that consumers do not prefer
digital payments.
For simplicity, we offer a summary of the most impactful prediction relationships in Tables
2 and 3. These estimates are derived from numerous conditional classification tree analysis
similar to Fig 1 that are not shown but available upon request. In Table 2, we summarize the

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Fig 1. Example of a conditional classification tree. Note: This conditional inference tree is obtained from a merchant-sample estimation
using the parameters provided by the variable importance plot from the random forest.
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conditional paths that have the most impact on MSMR POS terminal adoption. Interestingly,
POS terminal adoption is 200 percent more likely when the MSMRs’ share of electronic P2B
payments and bank account ownership are above the median country (23.2 percent and 62
percent, respectively). These thresholds may be challenging for a number of countries within
the sample. The 25th percentile for share of electronic P2B payments and bank account owner-
ship are 9.2 percent and 44.2 percent respectively. The median percentage of electronic P2B
transactions at MSMRs is a relatively low threshold. This result reinforces the dominant role of
payment cards among the digital payment choices generally available.
We also find that if wages are paid electronically above the median (35 percent) and mer-
chants believe that consumers prefer electronic payments is also above the median (52 per-
cent), POS terminal adoption is 100 percent more likely. In addition, there may be a feedback
loop whereby as more consumers prefer digital payments, more merchants install POS termi-
nals leading to more consumers adopting and so forth. As consumers become more accus-
tomed to using payment cards, the demand for merchants that did not previously adopt
payment infrastructure increases. In addition, payment card acceptance may be a strategic tool
to steal customers from merchants that do not accept cards. Unfortunately, our data does not
allow us to study business stealing. For more on business stealing in a theoretical context, see

Table 2. Factors influencing POS terminal adoption.

Factors for POS Terminal Adoption Increase in Likelihood of POS
Adoption
Share of P2B electronic payments and bank account ownership is above the 200 percent
median country (country level)
Merchants believe consumers prefer electronic payments and wages are paid 100 percent
electronically (mid-high or high preference) (merchant level)
Wages are paid electronically and combined with account ownership or with ICT 100 percent
infrastructures above median (country level)
ICT or national ID implementation are over the median value and shadow 50 percent
economy below 15% (country level)
Shadow economy below 25% is combined with implementing a national financial 20 percent
inclusion strategy or with merchant fiscal incentives (country level)
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Table 3. Factors influencing share of electronic P2B payments.

Factors for P2B Electronic Transactions Increase in Likelihood of P2B
Electronic Share
Wages paid electronically and card penetration in previous 5 years are over 100 percent
median value (country level)
POS terminal adoption is mid high or high (country level) 60 percent
ICT above median is combined with killer apps or with a significant use of 50–60 percent
agents of payment services providers (country level)
Merchants believe consumers prefer electronic payments and electronic 30 percent
payments to suppliers above median value (merchant level)
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[57]. Consumer preferences toward using digital payments have likely improved because of
their access to transaction accounts and payment cards.
Also, if at least 35 percent of wages are paid by a given MSMR into a transaction account at
a bank (the median in our sample) and ICT infrastructure is higher than the median country
(above 5.3 on a 10-point scale). The 25th percentile values for wages paid in a financial institu-
tion account and the ICT index are 10 percent and 3.5, respectively. POS terminal adoption is
twice as likely. This result suggests that if merchants pay a sufficient number of workers digi-
tally into a bank account (35% of more), they are more likely to accept card payments from
their customers if there is a sufficient level of ICT infrastructure. Our results suggest that pub-
lic policy should not only focus on P2B but also consider incentives to increase B2P payments
such as wages.
We also find that with ICT infrastructure above 5.3 on a 10-point scale or national ID
implementation being above median (94 percent) and the proportion of the shadow economy
to the whole economy being no greater than 15 percent result in a 50 percent greater likelihood
of MSMR POS terminal adoption. As we discussed above, ICT infrastructure is important for
POS terminal adoption, but other factors may be necessary. In this case, a national ID system
enables greater ownership of transaction accounts debit card.
Furthermore, implementing a national financial inclusion strategy or merchant fiscal
incentive initiative (at a national level) and having a proportion of the shadow economy to the
whole economy below 20 percent results in the likelihood of POS terminal adoption increasing
by 20 percent. The implementation of a financial inclusion strategy is another variable that
captures a necessary condition for card ownership which in turn increases the likelihood of
MSMR POS terminal adoption. The merchant fiscal incentive reduces the benefits of tax
evasion.
In Table 3, we report our results on the factors that impact the MSMRs’ share of electronic
P2B payments. When wages are paid digitally and card penetration in the previous five years
are above the median (35 percent and 11 percent, respectively), the likelihood of P2B electronic
payments increases by 100 percent. This result suggests that greater awareness by consumers
in the form of greater access to payment cards or by greater payment of their wages digitally,
increases the likelihood of digital payments increases substantially.
Given the popularity of cards as a digital alternative to cash, if POS terminal adoption is
over the median (10,005 terminals per 100,000 adults) the predicted share of P2B digital pay-
ments increases by 60 percent. Alternatively, it is less likely that merchants will adopt POS ter-
minals if they believe that consumers do not have access to them or will not use them.
If the level of ICT is over the sample median (5.4 out of 10) is combined with the develop-
ment of killer apps, or with a significant use of agents of payment service providers (1.2 per
1,000 inhabitants), P2B electronic payments’ likelihood increases by 50–60 percent. Killer apps
allow payments to be made by mobile phones and may serve as an alternative to payment

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cards. However, sufficient ICT infrastructure is likely necessary along with innovative mobile
phone-based solutions to increase MSMR’s P2B digital share of payments. In the treatment
effects section, our results suggest a negative relationship between leapfrogging and POS ter-
minal adoption. However, card payments could also benefit from mobile phone technology
and QR codes but this likely occurs when a robust card ecosystem already exists. Also, the
importance of agents suggests that digital payments do not immediately lead to digital liquid-
ity, but cash agents are generally required for consumers and businesses to convert digital
funds to cash and vice versa. We would expect a greater reliance on cash agents when signifi-
cant parts of the population are unbanked or do not use banks, or a lack of merchant accep-
tance of digital payments.
When payments to direct suppliers of MSMRs are above the median sample value (45.9 per-
cent) and the wages are paid electronically (over the median value), the MSMRs’ share of P2B
electronic payments is predicted to increase by 30 percent. This result suggests that digital pay-
ments in other parts of the merchant’s payment chain likely increases usage of digital P2B
payments.

4.3 Causal forest results

While the random forest and conditional inference trees offer insights into strong predictors
of digital payment acceptance and usage along with their sequencing and interactions with
each other, we also investigate causal effects. Specifically, we estimate the impact of a change in
each explanatory variable on one of our two dependent variables. The treatment effect is given
by the difference in the average outcomes between the treated and the untreated observations.
The standard procedure is to compute the “average treatment effects” (ATE) when the treat-
ment is defined based on a binary outcome as is the case for some incentives in our database.
For example, if we compute the impact of financial inclusion policies on POS terminal adop-
tion, we can estimate how POS adoption is impacted on average in countries with these poli-
cies compared with countries where no such policies exist, controlling for the rest of
explanatory factors. Our analysis is not based on a randomized experiment but, instead, our
analysis is a natural experiment based on exogeneous EPA incentive policies in various coun-
tries for different types of merchants.
We need to consider that our data also have a number of continuous variables. In this case,
instead of the ATE, we compute the “average partial effect” (APE), which shows the percent
change in the dependent variable due to a unit change in the treatment variables. Given the
four-level (1 = low; 2 = mid-low; 3 = mid-high; and 4 = high) transformation of the continuous
explanatory variables in our setting, the APE will show the average change in the dependent
variable of going from one level of the treatment to the next one. For example, if we select the
“ICT development index” as a treatment for POS adoption, we will be showing the average
partial effect on POS adoption of a country moving from one level to a higher one (e.g., from
mid-low to high ICT group).
As an initial test, we consider the top thirty explanatory factors in the variable importance
plot as a reference. We find significant relationships for 23 variables. We group these variables
into six categories: access points, economic formality, ICT infrastructure and account owner-
ship, policy variables, instruments, and merchant payment chain. We run a causal forest for
each one of the 23 variables and replicate the process for both dependent variables in the coun-
try-level and the merchant-level samples. All the results are shown as point estimates with 95
percent level confidence intervals.
In Fig 2, we report the results for the country-level sample where POS terminal adoption is
the dependent variable. In the case of access points, the use of “mobile phone or the internet to

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PLOS ONE Assessing incentives to increase digital payment acceptance

Fig 2. Treatment effects on POS adoption (country-level sample).

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access a financial institution account” is found to have a significant impact (16.2 percent) on
average across the four levels of POS terminal adoption and treated and untreated countries,
suggesting that consumers’ financial digitalization significantly influences merchants’ adop-
tion of POS terminals. Among more traditional channels, bank branches per capita in 2011
seem to have a more limited positive effect.
MSMRs may have a greater incentive to accept cash as a means to evade taxes. On the other
hand, greater reliance on cash transactions may result in MSMRs and consumers. In the case
of economic formality, the treatment effect of the “shadow economy over GDP” on POS adop-
tion is, as expected, negative with a relatively tight confidence interval illustrating that a large
shadow economy reduces the incentive for MSMRs to adopt POS terminals on average. The
effect of “crime” (measured as robbery and assaults per inhabitant) is positive with very tight
confidence interval suggesting that safety concerns for consumers and MSMRs leads to greater
adoption of digital payment acceptance infrastructure.
Account ownership indicators are among those with the larger marginal impact on POS
terminal adoption, suggesting that financial inclusion policies are impactful and should be
encouraged. We capture long-term transaction account ownership at banks by considering
2011 data. This is a proxy for a time dimension. Changing consumers’ and MSMRs’ payment
behavior requires time and these variables are able to provide some insights. For short-term
bank transaction account ownership, we use 2014. Interestingly, we find that the impact for
long-term account ownership is higher than short-term account ownership suggesting that
consumers need time to change from their preference for cash transactions at POS. As for
technology-driven changes, while there is a positive APE on POS terminal adoption of mobile
money accounts per capita possibly suggesting that similar infrastructures are used for non-
card and card payments.

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PLOS ONE Assessing incentives to increase digital payment acceptance

Two policy actions are economically significant and positive. These include mandates to
pay wages into transaction accounts and the presence of a national financial inclusion strategy.
The marginal impacts of both these public policy initiatives are significant.
From a price regulation perspective, we tried to capture the impact of regulating inter-
change fees, the fees that the merchant’s bank pays the cardholder’s bank and comprises the
bulk of the merchant cost to accept payment cards. The two variables that we consider are:
“authorities have taken actions or are considering taking action to address interchange fees”
and “authorities consider interchange fees to be high.” We would expect both of these variables
to have negative impact on POS terminal adoption because high fees would deter merchant
adoption of POS terminals. However, the treatment effects of these variables do not have the
expected sign and are insignificant. This result suggests that interchange fees may not be the
main deterrent for the lack of POS terminal adoption. However, we caution that these results
are averages across countries in different stages of financial development. In some cases, inter-
change fee regulation occurs in countries where merchant adoption is near complete. In these
cases, interchange fee regulation is not likely to increase adoption by merchants or usage by
consumers. In some cases, interchange fee regulation was implemented to reduce certain types
of payment card transactions. In other cases, interchange fee regulation occurs in countries
where the adoption and usage of cards by consumers is very low. Decreasing interchange fees
may not provide incentives to consumers to adopt and use payment cards. Alternatively, the
lack of a payment card infrastructure may result in new payment technologies being adopted
such as noncard based mobile payments. This result is also consistent with the premise that
there are other factors besides payment card fees that determine whether consumers will use
payment cards even if merchants accept them.
Our next category is payment instruments. While debit and credit card ownership have a
significant impact on POS terminal adoption, the latter seems to have a larger effect and to
increase over time. The link between payment cards and POS terminals should not be surpris-
ing since payment card acceptance for the most part requires a terminal. Alternative accep-
tance infrastructure has recently been introduced but the card form factor remains the
dominant one. In many countries, credit cards are accepted at tourist locations and certain
high-end stores well before adoption of debit cards by the masses. Consumer awareness and
card infrastructure grows from credit card acceptance in certain sectors which in turn may
allow for broader acceptance of debit cards.
As we have seen before, digital payment usage in other parts of the MSMR’s payment chain
positively impacts POS terminal adoption. The impact of the share of P2B, the share of B2B
and the share of B2P electronic payments over total transactions on POS terminal adoption is
positive and significant. The P2B results suggest a reinforcing feedback loop.
The impact on the MSMRs’ share of P2B electronic payments at MSMRs for the country-
sample are shown in Fig 3. For access points, not surprisingly, using the internet or mobile
phone to access a transaction account, POS terminal per capita, and ATMs per capita in 2011
are significant and positively impact MSMR share of digital P2B payments. However, branches
per capita is found to have a negative impact, suggesting the persistence of cash usage has a sig-
nificant effect in countries with large bank physical networks also the lower shoe leather costs
may help maintain the demand for cash transactions.
For the infrastructure variables, there is one main difference between the POS terminal
adoption and MSMR digital share of P2B payments. The effect of ICT infrastructure for the
latter is large and positive suggesting that all digital payments require sufficient ICT
infrastructure.
For government policy actions, the national financial inclusion strategy variable does not
remain significant suggesting that other factors such as technological advancements can

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Fig 3. Treatment effects on the share of P2B electronic payments (country-level sample).
https://doi.org/10.1371/journal.pone.0276203.g003

reduce the importance of a national financial inclusion strategy. While we discuss the impact
of a considerable number of incentives, others (such as terminal subsidies) or lotteries could
not be empirically analyzed due to data availability. In addition, the percentage of population
with a bank account is insignificant suggesting that bank accounts may not be a precursor in
all countries for greater digital payment usage.
In the case of payment instruments, debit card ownership in 2011 does not remain signifi-
cant while the other variables remain positive and significant. Given new data that captures
noncard based payments, we would expect the importance for card adoption to decrease even
more. Card networks are also processing other types of payments such as fast payments using
their infrastructure.
The magnitudes for the payment chain variables increase suggesting that merchants may
adopt other digital payments besides cards. As for the merchant payment chain, P2B payments
seem also to be substantially driven by B2B payments and, in particular, by B2P payments.
The merchant-level sample allows us to compare treated and untreated merchants for each
incentive. Because our incentives occur at the national level, our comparison will be between
merchants receiving the incentive in one or more countries (treated group) against merchants
not receiving the incentive in other countries (untreated group).
For expositional simplicity, we only report the impact of those incentives not previously
included in the country-level sample (Fig 4). Implementing merchant fiscal incentives will
increase the likelihood of POS terminal adoption. Consumer fiscal incentives also have a posi-
tive and significant effect. The impact is lower for mandated acceptance and for cash limits.
We also find that in those cases where a leapfrogging strategy develops, e.g. a killer mobile app
for payments, the effect is negative because POS terminal adoption may no longer be neces-
sary. The adoption of dongles on mobile phones and quick response codes may eventually
eliminate the need for terminal adoption.

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PLOS ONE Assessing incentives to increase digital payment acceptance

Fig 4. Impact of incentives: Treatment effects on pos terminal adoption (merchant level sample).
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Fig 5 reports the merchant-level effects of the different incentives on the share of P2B elec-
tronic payments. In this case, the effect of the killer app is positive and the largest among the
incentives considered showing the effects of mobile-related technology adoption on payment
usage. Merchant and consumer fiscal incentives are also found to have significant effects and

Fig 5. Impact of incentives: Treatment effects on the share of merchant P2B electronic payment transactions (merchant-level sample).
https://doi.org/10.1371/journal.pone.0276203.g005

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PLOS ONE Assessing incentives to increase digital payment acceptance

the effect is also considerable in the case of mandated use of electronic payments. The impact
of short-term and long-term cash limits are also positive but not as large.
A summary of all treatment effects for the country-level sample and the merchant-level
sample is shown in Tables 4 and 5, respectively. Overall, the empirical analysis provides some
generalized conclusions to increase merchant acceptance and usage of digital payments. First,
merchant and consumer decisions are interlinked when it comes to adoption and usage of dig-
ital payments. Second, digital payment acceptance and usage are positively impacted when any
part of the MSMR’s payment chain uses digital payments. Third, in cases where well-function-
ing payment infrastructure does not exist or is not widely used, certain technologies help
MSMRs bypass traditional acceptance infrastructure and adopt digital payments via alternative
routes (e.g., leapfrogging via mobile payments). Fourth, while several strategies and incentives
can be effective to increase digital payment acceptance and usage, their impact depends criti-
cally on the formality of the economy.
All the estimated treatment effects at the country-level and merchant-level are shown in
Tables 4 and 5, respectively. We have also conducted a number of robustness tests to check the
accuracy and stability of our results compared to other methods and model specifications.
These are shown in S2 Appendix for exposition simplicity.

5 Policy implications
In this section, we discuss different government policies that would encourage greater accep-
tance and usage of digital payments. Merchant adoption of acceptance infrastructure does not
necessarily translate into usage of payment cards. Interestingly, we find that newer technolo-
gies using the mobile phone channel increases adoption and usage of digital payments espe-
cially in countries where card penetration is low. In addition, we are able to identify which
public sector incentives along with private sector enhancements such as killer apps result in
greater usage of digital payments. Furthermore, our results suggest that a set of actions may be
necessary by the public and private sectors to encourage the acceptance and usage of digital
payments. We find the following government strategies may be successful to increase digital
payment acceptance and usage:
1. Our analysis suggests that transaction account ownership whether at a bank or not gener-
ally increases merchant adoption of POS terminals and increases the share of MSMRs’ digi-
tal payments received from their customers. Countries should implement policies to
promote greater financial inclusion.
2. Our analysis suggests that improvements in ICT infrastructures are likely to increase accep-
tance and usage in countries with high transaction account ownership. Countries should con-
tinue to invest in ICT infrastructure to enable greater digital payment acceptance and usage.
3. Our analysis suggests that when other parts of their payment chain are using digital pay-
ments, MSMRs are likely to increase their adoption of POS terminals resulting in more dig-
ital payments. Governments should encourage merchants to pay their workers
electronically along with mandating digital payments for government wages.
4. Our analysis suggests that leveraging mobile phones to deliver payment services via killer
apps may enable leapfrogging of card acceptance infrastructure using less expensive QR
technology. Governments should encourage greater adoption of such technologies while
maintaining adequate consumer protections and fraud prevention protocols.
5. Our analysis suggests that consumer and merchant fiscal incentives can be effective in
increasing merchant acceptance and usage of digital payments. Reducing taxes paid by

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PLOS ONE Assessing incentives to increase digital payment acceptance

Table 4. Summary of treatment effects from the country-level sample.

POS adoption Share of electronic P2B payments
variable level ATE/ Lower Upper variable level ATE/ Lower Upper
APE bound bound APE bound bound
Merchant Share of P2B electronic payments 0.257 0.24 0.273 Merchant Share of B2B electronic payments 0.170 0.138 0.201
payment chain payment chain
Merchant Share of B2B electronic payments 0.148 0.073 0.223 Merchant Share of B2P electronic payments 0.354 0.234 0.473
payment chain payment chain
Merchant Share of B2P electronic payments 0.185 0.078 0.291 Institutional Wages paid into a transaction 0.198 0.142 0.253
payment chain and policy account
Institutional Wages paid into a transaction 0.124 0.114 0.134 Institutional A national financial inclusion 0.065 -0.095 0.225
and policy account and policy strategy exists
Institutional A national financial inclusion 0.156 0.097 0.214 Institutional Authorities consider interchange 0.003 -0.176 0.182
and policy strategy exists and policy fees to be high
Institutional Authorities consider interchange 0.079 -0.038 0.196 Institutional Authorities have taken actions, 0.017 -0.089 0.123
and policy fees to be high and policy or are considering taking action
to address interchange fees
Institutional Authorities have taken actions, 0.001 -0.225 0.226 Access points Used a mobile phone or the 0.138 0.042 0.233
and policy or are considering taking action internet to access a financial
to address interchange fees institution account in the past
year (% age 15+)
Access points Agents of payment services 0.165 -0.128 0.458 Access points Agents of payment services 0.146 -0.288 0.579
providers providers
Access points Branches per capita 0.071 -0.02 0.161 Access points POS per capita 0.198 0.187 0.208
Access points ATMs per capita in 2011 0.092 -0.01 0.194 Access points ATMs per capita 0.041 -0.076 0.157
Access points ATMs per capita 0.085 -0.006 0.175 Access points Branches per capita -0.103 -0.126 -0.08
Access points Branches per capita in 2011 0.031 0.043 0.018 Access points ATMs per capita in 2011 0.117 0.055 0.178
Access points Used a mobile phone or the 0.162 0.069 0.254 Access points Branches per capita in 2011 0.030 -0.09 0.15
internet to access a financial
institution account in the past
year (% age 15+)
Infrastructure Mobile money accounts per 0.167 0.154 0.179 Infrastructure Mobile money accounts per 0.112 0.048 0.175
capita capita
Infrastructure ITU ICT 0.164 0.002 0.325 Infrastructure ITU ICT 0.337 0.188 0.486
Infrastructure Percentage of 15+ population 0.175 0.051 0.298 Infrastructure Percentage of 15+ population 0.114 -0.048 0.276
with a bank account with a bank account
Infrastructure Percentage of 15+ population 0.267 0.159 0.375 Infrastructure Percentage of 15+ population 0.233 0.147 0.318
with a bank account in 2011 with a bank account in 2011
Instruments Credit card ownership (% age 15 0.252 0.211 0.292 Instruments Credit card ownership (% age 15 0.129 0.019 0.238
+) +)
Instruments Debit card ownership (% age 15 0.239 0.16 0.318 Instruments Debit card ownership (% age 15 0.209 0.122 0.296
+) +)
Instruments Credit card ownership (% age 15 0.295 0.177 0.413 Instruments Credit card ownership (% age 15 0.179 0.155 0.202
+) in 2011 +) in 2011
Instruments Debit card ownership (% age 15 0.106 0.022 0.189 Instruments Debit card ownership (% age 15 0.033 -0.111 0.176
+) in 2011 +) in 2011
Economic Shadow economy over GDP -0.087 -0.117 -0.056 Economic Shadow economy over GDP -0.091 -0.143 -0.038
formality formality
Economic Crime 0.053 0.016 0.089 Economic Crime 0.080 0.074 0.085
formality formality

Note: the table shows the average treatment effect (ATE) for binary variables and the average partial effect (APE) for four-level (1, 2, 3, 4) variables, along with the lower
and upper bound of the confidence intervals.

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Table 5. Summary of treatment effects from the merchant-level sample.

POS adoption Share of P2B electronic payment value Share of P2B electronic payment transactions
variable level ATE Lower Upper variable level ATE Lower Upper variable level ATE Lower Upper
bound bound bound bound bound bound
Merchant Direct fiscal 0.080 0.064 0.096 Merchant Direct fiscal 0.050 0.032 0.068 Merchant Direct fiscal 0.072 0.061 0.083
fiscal incentives fiscal incentives fiscal incentives
incentives incentives incentives
Consumer Direct fiscal 0.064 0.043 0.084 Consumer Direct fiscal 0.042 0.029 0.054 Consumer Direct fiscal 0.062 0.054 0.069
fiscal incentives fiscal incentives fiscal incentives
incentives incentives incentives
Mandated Mandated 0.017 0.013 0.021 Mandated Mandated 0.047 0.028 0.066 Mandated Mandated 0.062 0.051 0.073
electronic acceptance electronic acceptance electronic acceptance
payment payment payment
acceptance acceptance acceptance
Cash limits Cash limits 0.018 0.011 0.024 Cash limits Cash limits 0.062 0.041 0.082 Cash limits Cash limits 0.042 0.035 0.048
(long-term) (long-term) (long-term)
Cash limits Cash limits 0.004 0.002 0.005 Cash limits Cash limits 0.046 0.022 0.07 Cash limits Cash limits 0.029 0.022 0.035
(short- (short- (short-
term) term) term)
Killer app Leapfrogging -0.053 -0.062 -0.044 Killer app Leapfrogging 0.061 0.050 0.071 Killer app Leapfrogging 0.071 0.068 0.073

Note: the table shows the average treatment effect (ATE), along with the lower and upper bound of the confidence intervals.

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merchants and consumers are some of the most effective incentives to increase digital pay-
ment acceptance and usage. Governments should consider using fiscal incentives to
encourage greater digital payment usage.
6. Our analysis suggests that cash limits and mandated digital payment acceptance are likely
to increase digital payment acceptance and usage. Our analysis suggests that government
policies targeted at reducing the shadow economy such as mandated use of electronic pay-
ments or transaction limits for cash transactions can be effective tools to increase EPA and
usage although enforcement of these policies may be challenging.

6 Conclusion
In this paper, we provide an alternative approach to study how to identify key predictors to
increase adoption and usage of digital payments by consumers and merchants. We consider
hundreds of predictors and identify certain factors that increase the likelihood of adoption and
usage. Finally, we are able to quantify the impact of certain incentives. Our results suggest that
government initiatives such as increasing access to transaction accounts at banks and non-
banks, encouraging digital wage payments, and improvements to ICT technologies increase
the acceptance and usage of P2B digital payments at MSMRs. Furthermore, the presence of
killer apps that reside on mobile phones along with greater awareness of the benefits of digital
payments increases P2B digital payments. Finally, our results suggest that policies targeted at
reducing the size of the shadow economy, such as consumer and merchant fiscal incentives,
cash thresholds on transactions, and mandated electronic payment acceptance, can be effective
policies but often the least studied.

7 Limitations
Our study aims at providing new insights on the factors that influence the acceptance of digital
payments internationally. However, machine learning weights prediction over inference and it

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PLOS ONE Assessing incentives to increase digital payment acceptance

is subject to interpretation. For these reasons, our results should be taken carefully and would
benefit from comparisons using other methodologies.
Additionally, while we use a large and rich dataset, it is the result of the combination of vari-
ous data sources and surveys conducted for different reasons. To better inform policymakers
on effective policies to enable greater digital payment acceptance and usage, longitudinal data
collection and analysis are critical to identify the effectiveness of various public and private sec-
tor initiatives. Unfortunately, we lack a time-series component to study how such incentives
impact acceptance and usage over time within a country. Furthermore, more standardized
cross-country merchant surveys should be encouraged to better understand why certain incen-
tives work better in some countries than others. Such data would allow better estimation of
impact of an initiative within a country which is likely to be more important to base policy
upon.
Finally, we would encourage policymakers to consider the role of nonbanks in the provision
of payment services to increase access to digital payment services while adopting proper safe-
guards to ensure a safe and efficient payment system with adequate end-user protections espe-
cially when a large proportion of the population is unbanked. Technological advances often
brought to the marketplace by nonbanks are likely to increase digital connectivity among con-
sumers and businesses and increase the acceptance and usage of digital payments.

Supporting information
S1 Appendix. The data.
(DOCX)
S2 Appendix. Robustness checks [59–61].
(DOCX)

Author Contributions
Conceptualization: Jeff Allen, Santiago Carbo-Valverde, Sujit Chakravorti, Francisco Rodri-
guez-Fernandez, Oya Pinar Ardic.
Data curation: Jeff Allen, Santiago Carbo-Valverde, Oya Pinar Ardic.
Formal analysis: Jeff Allen, Santiago Carbo-Valverde, Sujit Chakravorti, Francisco Rodriguez-
Fernandez, Oya Pinar Ardic.
Investigation: Jeff Allen, Santiago Carbo-Valverde, Sujit Chakravorti, Francisco Rodriguez-
Fernandez, Oya Pinar Ardic.
Methodology: Santiago Carbo-Valverde, Sujit Chakravorti, Francisco Rodriguez-Fernandez.
Software: Francisco Rodriguez-Fernandez.
Writing – original draft: Jeff Allen, Santiago Carbo-Valverde, Sujit Chakravorti, Francisco
Rodriguez-Fernandez, Oya Pinar Ardic.

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