The Impact of Digital Financial Capability on Digital Financial Consumer Behavior: Moderating Role of Perceived Risk in the Pakistani Banking Sector

Abstract

The emerging trend of digitizing the financial industry has irrevocably changed consumer behavior when attending to banking services, but it has not currently had so widespread adoption in some emerging economies like Pakistan. This paper explores the role of Digital Financial Capability (DFC) and its sub-dimensions (such as digital financial literacy, digital financial satisfaction, and socialization) on Digital Financial Consumer Behavior (DFCB) and identifies how Perceived Risk (PR) moderates these roles. Applying Partial Least Squares Structural Equation Modeling (PLS-SEM), the analysis, using a cross-sectional survey of 400 users of digital banking in Punjab, Pakistan, obtains that all the three dimensions of DFC have significant and positive impacts on DFCB. However, higher PR moderates such associations showing that, even socially supported and informed individuals might not engage in digital financial services under the assumption that they are risky. The findings offer feasible suggestions to banks, fintech providers and policymakers to consider linking consumer empowerment and trust building programs. The study is useful to the existing scholarly understanding of fintech adoption by demonstrating what constrains behavioral outcomes that transpires through digital financial preparedness in the emerging economies due to perceived risk.