The Impact of Digital Payment Adoption and Working Capital on MSMEs Profitability: Evidence from Kepadangan Village, Tulangan District, Sidoarjo Regency, Indonesia

Abstract

This study investigates the impact of digital payment adoption and capital on the profitability of Micro, Small, and Medium Enterprises (MSMEs) in Kepadangan Village, Tulangan, Sidoarjo. Utilizing a quantitative approach, data was gathered from 30 randomly selected MSMEs via accidental sampling and analyzed using multiple linear regression in SPSS 29. Crucially, the results reveal that digital payment adoption has a negative and non-significant influence on MSME profitability. This unexpected trend is driven by high transaction fees and low digital literacy among local business owners. Conversely, capital exerts a strong positive and significant influence on profitability, as adequate funding directly enables MSMEs to scale production capacity, improve product quality, and expand marketing efforts. These findings suggest that while capital remains a vital driver for local economic growth, a critical gap exists in digital financial infrastructure and education that must be addressed to prevent digital tools from becoming a financial burden to small enterprises.