Challenges and Determinants of Digital Financial Services in Rural Karnataka: A Review of Existing Research

Abstract

India has witnessed an unprecedented expansion of digital financial services (DFS), with the Unified Payments Interface (UPI) processing over 186 billion transactions in FY 2024–25 and the RBI Digital Payments Index surging from a base of 100 in March 2018 to 493.22 by March 2025. However, this aggregate growth masks a persistent rural–urban divide, particularly in states like Karnataka where Bengaluru’s digital dominance inflates state-level metrics while rural hinterlands contend with low adoption rates estimated at only 3–7% of active digital payment users. This paper undertakes a comprehensive narrative literature review of existing research on challenges and determinants of DFS adoption in rural Karnataka. Drawing upon 62 peerreviewed articles, government reports from the Reserve Bank of India (RBI), the National Bank for Agriculture and Rural Development (NABARD), the Telecom Regulatory Authority of India (TRAI), and the National Payments Corporation of India (NPCI), the study employs a thematic analysis framework grounded in the Unified Theory of Acceptance and Use of Technology (UTAUT2). Six thematic challenge clusters are identified: digital literacy deficits, infrastructure gaps, trust and cybersecurity concerns, the gender digital divide, language and interface barriers, and regulatory fragmentation. The findings reveal that performance expectancy, social influence, and trust are the most consistent positive determinants, while perceived risk and digital illiteracy represent the strongest inhibitors. The paper proposes an integrative conceptual framework mapping these determinants to adoption outcomes and offers policy recommendations for bridging the rural digital financial divide in Karnataka. Implications for researchers, policymakers, and financial service providers are discussed.