DIGITAL PAYMENTS AND FINANCIAL INCLUSION AMONG PARATRANSIT OPERATORS: ASSESSING THE TRANSITION TOWARDS FORMAL FINANCE

Abstract

The expansion of digital payment systems has created new opportunities for economically informal workers to participate in more visible and structured financial activities. However, the adoption of digital payments does not automatically result in meaningful financial inclusion or sustained engagement with formal financial systems. This study examines the pathway through which digital payment adoption may contribute to the transition towards formal finance among paratransit operators by considering the intermediary roles of transaction formalization and financial inclusion. A quantitative explanatory approach was employed using an analytical sample of 350 observations. The proposed relationships were assessed through Partial Least Squares Structural Equation Modelling (PLS-SEM). The findings indicate that digital payment adoption was positively associated with transaction formalization (β = 0.488, p < 0.001) and financial inclusion (β = 0.306, p < 0.001). Transaction formalization also demonstrated a significant positive relationship with financial inclusion (β = 0.396, p < 0.001), while financial inclusion emerged as a strong predictor of the transition towards formal finance (β = 0.612, p < 0.001). The model explained 23.8% of the variance in transaction formalization, 36.9% in financial inclusion, and 37.5% in the transition towards formal finance. In addition, the sequential indirect relationship linking digital payment adoption to the transition towards formal finance through transaction formalization and financial inclusion was positive (β = 0.118), supporting the proposed process-oriented pathway. The study highlights that the contribution of digital payments extends beyond payment convenience when digitally recorded transactions facilitate financial visibility and broader participation in formal financial arrangements. The findings offer a structured perspective for understanding how digital financial practices may support the progressive integration of workers operating in economically informal transport sectors into the formal financial ecosystem.