Digital Payment Adoption and Household Consumption Smoothing in Urban Indonesia

Abstract

This study examines whether the adoption of QR-based digital payments alters household consumption smoothing behaviour in five Indonesian metropolitan areas. Using a panel of 2,480 households observed quarterly between 2021 and 2025, we estimate a dynamic consumption model with household fixed effects and instrument adoption with the staggered rollout of merchant onboarding campaigns.

We find that adopting households absorb transitory income shocks 18 per cent more effectively than non-adopters, and that the effect is concentrated among informal-sector workers without access to formal credit. The mechanism appears to operate through reduced transaction frictions in peer-to-peer transfers rather than through improved access to credit itself.

The results suggest that payment infrastructure carries welfare consequences beyond convenience, and that policy evaluations focused solely on merchant adoption may understate the aggregate benefit.