Effect of Technology Based Financial Innovations on Non-Interest Income of Commercial Banks in Kenya

Abstract

Technology based financial innovation has had a great impact on the financial industry as a whole over the past few decades. It has presented the banking sector with an opportunity to increase their revenue. As such, this study intended to identify the impact of technology based financial innovation on non-interest income in commercial banks in Kenya. To achieve this, the study investigated how the adoption of ATMs and cards, internet and mobile Banking as well as the use of funds transfer systems such as RTGS and EFT have impacted the non-interest income of commercial banks in Kenya. The study adopted a descriptive research design because it allowed the researcher to look into a wide range of data that is obtainable in an effort to explain the phenomenon at hand. It also used secondary data obtained from the Central Bank of Kenya, between the year 2006 and 2016, implying that it was the latest of its kind. Data was analysed using Statistical Packages for Social Sciences (SPSS Version 22) by employing descriptive statistics and multiple regression analysis. Results from this study indicated that indeed financial innovation has a significant effect on non-interest income. It noted that increase in income from use of ATMs, debit and credit cards, mobile banking, online banking applications and income generated from funds transfer systems result to an increase in non-interest Income of commercial banks in Kenya. The study also revealed that the exists a strong significant correlation between income generated from use of cards and ATMs, mobile banking, online banking and funds transfer systems, and the non interest income of commercial banks. The study therefore concluded that technology based financial innovation has a significant effect on the non-interest Income earned by commercial banks in Kenya. It recommends all stakeholders in the banking sector to make investments made towards technology based financial innovation products as a strategy to improve the amount of income they earn from non-interest sources. This is likely to increase their overall earnings given the current interest capping requirements and the expected impairment loss approach to be adopted by the sector in line with the new financial reporting standards.