Frugal innovation is an approach for developing simple, low-cost, and efficient solutions under resource constraints. This study aims to examine the effects of knowledge acquisition and knowledge sharing on frugal innovation in Iranian Payment Service Providers (PSPs) and to investigate the mediating role of core competencies in these relationships.

This study adopts a positivist paradigm using a quantitative approach and a descriptive survey research design. The target population consisted of middle- and senior-level managers of PSPs. The required sample size was determined a priori using G*Power; ultimately, 176 valid responses were obtained. Data were collected using a standardized questionnaire and analyzed with SPSS and AMOS.

The results revealed that knowledge acquisition did not have a significant direct effect on frugal innovation, whereas knowledge sharing had a positive and significant effect on it. Furthermore, core competencies mediate the effects of both knowledge acquisition and knowledge sharing on frugal innovation.

The findings indicate that knowledge sharing is a primary driver of frugal innovation, while knowledge acquisition becomes effective when it is transformed into organizational core competencies. By providing empirical evidence, this study clarifies the indirect mechanism by which knowledge is converted into frugal innovation via core competencies.

By integrating the Knowledge-Based View and the Resource-Based View, this research proposes an integrated framework for understanding how knowledge is transformed into innovation under resource constraints. The study contributes to enriching the frugal innovation literature and provides practical insights for managers regarding the utilization of knowledge management practices to enhance frugal innovation.