Trust and Digital Finance: Implications for Small Business Performance

Abstract

In recent years, the rapid expansion of Digital Financial Services (DFS) has transformed the financial landscape, particularly in developing countries where access to traditional banking remains limited. Informal and unregistered small businesses, which form a crucial component of these economies, often face significant barriers to financial inclusion. DFS platforms such as mobile banking, online trading, and digital wallets offer promising alternatives; however, their adoption hinges heavily on the level of trust users place in these technologies. This study aims to investigate the role of trust as a mediating factor in the adoption of DFS and its impact on the performance of small businesses operating in the informal sector. It also investigates the relationship of digital financial services and defines its influence on decision making of stakeholders. Specifically, the research focuses on informal enterprises in Faisalabad, Pakistan. A quantitative research design was employed, using purposive sampling to collect primary data from 365 respondents through structured questionnaires. The data were analyzed using SmartPLS and SPSS, applying both descriptive and inferential statistical techniques. The findings reveal a strong positive relationship between trust and the adoption of DFS, along with a significant association between DFS usage and various business performance indicators, including enhanced operational efficiency, expansion of customer base, and improved financial stability. The study provides valuable insights for policymakers, financial institutions, and development practitioners, emphasizing the importance of fostering trust in digital financial platforms to enhance financial inclusion and support the sustainable growth of informal small businesses.