Principal-agent trust and adoption of digital financial services: Evidence from India

The high reliance on cash is a lifestyle for many people, and their low proficiency with smartphone usage acts as an inertial barrier to using digital financial services (DFS). Given low financial or digital literacy, online banking transactions have to be promoted and mediated by DFS agents. This study examines the role of digital platforms, intermediaries such as banks, mobile money agents, payment banks, post offices, and the government's increasing use of digital technologies. This usage of digital platforms is based on the trust relationship between the principals, who are owners of their bank accounts, and agents of DFS, who are intermediaries. A linear probabilistic model is employed to determine the determinants behind the low adoption of DFS between the necessity and nonnecessity groups. We observe that demand-side factors like education level, identity proof (documentation), and level of smartphone use proficiency increase the probability of a principal's involvement in a digital mode of payment. At the same time, supply-side factors like digital infrastructure and trust deficit due to unviable commission incentives to DFS agents decrease the principal's likelihood of using digital platforms.