The Effect of Financial Innovation on the Financial Performance of Commercial Banks in Kenya

Abstract

The study endeavored to find the relationship between financial innovations and the financial performance of commercial banks in Kenya. The study variables were mobile phone, agency banking and ATM banking. The study adopted a descriptive research design. The target population of this study was all the 43 commercial banks in Kenya. The study used secondary data collected from the published annual reports for commercial banks spanning from 2012 to 2016 during which technological innovations have been intensely invested in by banks. The study used descriptive statistics using Statistical Package for Social Sciences V21.Multiple regression analysis was used to test the relationship between financial innovations and financial performance among commercial banks in Kenya. The study concluded that mobile phone banking, agency banking and ATM banking as financial innovations positively impacted the financial performance of commercial banks in Kenya over the 5 year period. The study recommends that management of the commercial banks in Kenya ought to enter into more partnerships with mobile phone services providers in an effort to ensure their customers continue to adopt the use of the platform in order to enhance financial performance. The study further recommends that banks should put more resources in ensuring that they partner with more agents especially in the rural areas where they do not operate branches so that they reach the unbanked. Finally, the study recommends that that the ATM networks be further increased especially in areas where no such facilities exist in order to reach more people.