From Tradition to Innovation: A PLS - SEM Analysis of IOT, AT, and Fintech Literacy in Bali’s MSMEs

The rapid development of digital technology has made it imperative for MSMEs to adopt innovative solutions to remain competitive. IoT and AI have emerged as revolutionary tools, yet their adoption among MSMEs is low due to weak digital adoption, low financial literacy, and inclusion. The study examines the effect of IoT and AI adoption on MSME financial performance, focusing on the mediating effect of financial literacy and fintech. Existing studies overlook the interplay among technology adoption, financial literacy, and financial performance. Bridging this gap in research, the study aims at 100 MSMEs in Bali that have obtained business legality through decentralization funds. A purposive sampling method was used, and data were analyzed using partial least squares structural equation modeling (PLS-SEM). The results show that MSMEs with high IoT and AI adoption and financial literacy enjoy high financial performance benefits. This contradicts the proposition that technology alone brings financial success, emphasizing financial literacy's moderating role. This study relies on secondary data and is prone to methodological limitations that may affect the interpretation of results. Results also may have limited generalizability beyond Bali. Future research must examine diverse settings, qualitative insights, and cultural and regulatory effects on MSME digital adoption. The paper contributes to the literature on MSME growth by combining technology and financial literacy. It provides insights to policymakers, entrepreneurs, and scholars on leveraging digital transformation. In the future, research can examine the long-term impact of digital adaptation on MSME resilience and development.