This paper examines how financial technology (FinTech) adoption reduces informality and improves the performance of small and medium-sized enterprises (SMEs) in Albania. In a transitional economy with a large shadow economy and widespread cash use, Albanian SMEs face major difficulties formalizing their operations and accessing finance. This study employs a conceptual framework that links digital financial services such as mobile payments, digital wallets, and e-invoicing to firm performance through the intermediate role of reduced informality; on this basis, three hypotheses are put forward. To address endogeneity, the empirical strategy uses a panel data approach combined with instrumental variables and propensity score matching. The findings, based on a literature review and empirical parameters, indicate that FinTech adoption significantly boosts tax compliance and recorded sales, thereby reducing informality. Moreover, formalization mediates FinTech’s positive effect on SMEs’ sales growth and profitability. The paper ends by offering policy recommendations on regulatory frameworks, such as integration with SEPA and fiscal reform, to promote a digital financial ecosystem favorable to SME growth.
Keywords: Financial Inclusion, Fintech, Informality, SME Performance, Shadow Economy, digital payments
