Effects of Digital Banking Strategy on Financial Inclusion Among Commercial Banks in Kenya

Abstract

Globally, digital banking strategies such as mobile, agency and online banking are heavily used by banks to ensure their positive financial outlook through increased financial inclusion ever-changing user needs and other market forces. The Kenyan banking industry has been undergoing rigorous transformation including changing customer need, innovation, technological advancements, deregulation, globalization and stiff competition. To cope with these market forces that threaten the survival, competitiveness, financial inclusivity, profitability and growth, commercial banks are implementing a number of digital banking strategies including mobile banking and online banking among others. The study researched on the effects of digital banking strategy on financial inclusion among commercial banks in Kenya. The study is based on finance-growth theory, constraint-induced financial innovation theory and transaction cost innovation theory. A descriptive survey research design was used where all the 42 commercial banks in Kenya were involved. The target population was the registered 42 commercial banks in Kenya as at 31st December 2016. The study used quantitative secondary data from CBK annual reports for 2012 – 2016. In analyzing the quantitative data, the study used descriptive statistics and regression analysis while qualitative data was analyzed using content analysis. From the findings, it was concluded that commercial banks in Kenya had adopted diverse digital banking strategies to not only ensure their sustainability but also to reach the unbaked people in Kenya. The digital banking strategies had a significant effect on financial inclusion among commercial banks in Kenya. There was a significant positive change in financial inclusion as proxied by the number of accounts, deposits value, number of outlets and customer base, over the 5-year period. The most significant digital banking strategy is mobile banking followed by ATM banking, agency banking and online banking respectively. The study recommends that there is need for the management of the commercial banks to collaborate with the telecommunication players to enhance uptake of mobile banking. The government through relevant ministry needs to continue investing in internet connectivity to increase access to online banking. The bank management should constantly review their agency policies to increase the number of agents for increased financial inclusion. The commercial banks should continue investing on the modern ATMs that allow for diverse banking services hence increasing banking of the unbanked. Having focused on the effect of digital banking strategy on financial inclusion in Kenya a similar study should be done among other financial institutions other than banks for comparison purposes and to allow for generalization of findings. A study should also be conducted on the effect challenges facing the adoption of digital banking strategies among banks in Kenya.