The Role of E‑Commerce in Promoting Digital Financial Inclusion: Empirical Evidence from Pakistan

Abstract

Digital financial inclusion remains uneven across developing economies despite rapid digitalization. This study investigates whether and how participation in e-commerce promotes financial inclusion in Pakistan a cash dominant, low-trust context characterized by expanding digital markets alongside persistent gender and rural disparities. Drawing on a mixed-methods design that combines national payment systems data with original survey evidence from 450 merchants and consumers, we show that participation in formal e-commerce platforms is strongly associated with improved financial inclusion outcomes. Specifically, formal platform participation is linked to a 34-percentage-point increase in digital payment acceptance and a 28-percentage-point increase in access to formal credit (average marginal effects from logistic regression, controlling for key covariates). However, these gains are highly uneven. Women merchants exhibit significantly lower adoption rates (approximately 27 percentage points lower), while the persistent dominance of Cash on Delivery (61% of transactions) limits the digitization of financial activity and constrains inclusion outcomes. Combining quantitative analysis with qualitative evidence, the study identifies three underlying mechanisms: transaction digitization, embedded finance integration, and network effects. Yet, these mechanisms operate imperfectly in cash-dominant environments. The paper makes three key contributions. First, it conceptualizes e-commerce platforms as data-generating financial infrastructures that reshape access to financial services. Second, it identifies payment modality as a binding constraint, showing that digital commerce does not automatically translate into financial inclusion where cash remains dominant. Third, it introduces and empirically substantiates the concept of conditional inclusion, whereby digital participation yields uneven financial access across social groups. The findings have important policy implications, highlighting the need for targeted interventions to accelerate digital payment adoption, address gender gaps, and expand rural digital infrastructure. Without such measures, the benefits of digital commerce risk reinforcing existing inequalities rather than alleviating them.