Digital Payment Systems and Small Businesses in Nairobi’s Informal Settlements: An Economic Impact Analysis

Digital payment systems have become increasingly prevalent in urban areas of Kenya, including Nairobi’s informal settlements. However, their impact on small businesses operating within these environments is less understood. A mixed-methods approach was employed, combining quantitative data from surveys and interviews with qualitative insights through case studies. Data were analysed using regression analysis and thematic coding. The findings indicate that small businesses in Nairobi’s informal settlements have experienced an average increase of 20% in transaction volumes since the introduction of digital payment systems, with a significant improvement in customer satisfaction scores (Mann-Whitney U test, p < 0.01). Digital payment systems have significantly boosted economic activity and improved operational efficiency for small businesses in Nairobi’s informal settlements. Local policymakers should support the expansion of digital payment infrastructure to further enhance business operations and financial inclusion. Model estimation used $\hat{\theta}=argmin_{\theta}\sum_i\ell(y_i,f_\theta(x_i))+\lambda\lVert\theta\rVert_2^2$, with performance evaluated using out-of-sample error.