Enhancing Competitive Advantage in SMEs through FinTech: The Mediating Roles of Technological Innovation and Financial Agility in Emerging Economy

Purpose—In today’s rapidly evolving digital landscape, small and medium-sized enterprises (SMEs) must leverage financial technologies to remain competitive, especially in emerging economies. This study examines how FinTech adoption and digital financial literacy enhance SME competitive advantage, with a focus on the mediating roles of technological innovation (e.g., digital process upgrades, automation, and online service delivery) and financial agility (e.g., faster access to capital, adaptive budgeting, and real-time financial decision-making). Design/methodology/approach—Guided by the Resource-Based View and Dynamic Capabilities Theory, this study examines how FinTech adoption and financial literacy enhance SME competitive advantage through the serial mediation of technological innovation and financial agility, tested via PLS-SEM. Using data from 280 SME managers in Lahore and Karachi, it addresses a gap in RBV/DC literature by highlighting FinTech-driven capabilities as mechanisms for strategic outcomes in emerging economies. Findings—The results reveal that both FinTech adoption and digital financial literacy significantly improve SMEs' capacity to innovate and respond financially with agility. Technological innovation emerged as the strongest mediator, demonstrating that digital tools are most effective when they enable concrete improvements in business processes and services. Theoretical implications—This study advances theory by articulating how specific digital financial capabilities translate into competitive advantage through innovation and agility. It bridges gaps in SME innovation literature by empirically validating the dual-mediator model within a developing economy context. Practical implications—Policymakers and SME support institutions should prioritize digital upskilling programs and promote the integration of FinTech solutions that directly enhance innovation and financial responsiveness. Continuous investment in digital infrastructure is also critical for long-term competitiveness. Originality/value—By disentangling the pathways from FinTech capabilities to competitive advantage, this research provides a clearer understanding of how and why digital transformation matters for SMEs. It moves beyond generic discussions of “digital disruption” to offer specific, actionable insights into innovation and agility as mediators of strategic performance.