The South African Reserve Bank published a working paper examining fintech-provided revenue-based financing for small businesses using transaction-level data from a major South African payment processor. The paper finds that, eight months after taking an offer, businesses that accept financing have 16% lower payments through the processor than observably similar non-takers, consistent with a combination of revenue hiding to reduce repayments and adverse selection by riskier firms. The analysis uses data covering over 100 million transactions from a fintech platform that provides “capital advances” repaid by deducting a constant share of daily processed transactions until the principal plus a fixed fee is repaid. Two natural experiments are presented: a rival processor’s price reduction following USD 15 million in funding from a World Bank Group member is associated with a relative 10–15% decline in post-advance transactions for exposed takers, and a temporary system error that delayed advance offers from three to six months is associated with 5% higher post-advance revenue for takers, suggesting that longer non-lending interactions can improve screening. The working paper is published as preliminary research intended to stimulate comment and debate, and the views expressed are those of the authors rather than South African Reserve Bank policy.
South African Reserve Bank 2025-05-13
South African Reserve Bank publishes working paper on fintech revenue-based financing and small business revenue hiding
The South African Reserve Bank's working paper on fintech-provided revenue-based financing for small businesses shows that businesses accepting such financing have 16% lower payments through a major processor than non-takers. Using data from over 100 million transactions, the study suggests revenue hiding and adverse selection by riskier firms. Two natural experiments indicate competitive pricing and longer non-lending interactions can impact transaction volumes and improve screening.