The Effect of Mobile Banking on the Financial Services Diversification of Commercial Banks in Kenya

Abstract

The objectives of the study were to determine the effect of M-banking on the financial services diversification of banks in Kenya. Due to increased competition in the banking industry and consumer preference for convenience, banks have embraced mobile banking to stay competitive. However, it has not been empirically proven how it affects financial services diversification in commercial banks. Therefore, the study’s objective was to determine the effect of mobile banking on the financial services diversification of commercial banks in Kenya. The study was a descriptive research targeting a population of 40 commercial banks that had been in operation between the periods 1 January 2013 to 31 December 2017. The study collected secondary data from financial reports filed with the Central Bank of Kenya. Data collected was analysed using descriptive statistics such as mean, standard deviation, skewness, kurtosis and quartile values. Inferential analysis using correlation and multiple linear regression models were used. Test of assumptions such as multicollinearity tests were also run. The findings revealed that top tier banks have embraced mobile banking more than other tiers and their incomes were more diversified. Mobile banking was found to positively influence diversification of financial services as measured by Herfindahl Hirschman Diversification or Concentration Index (HHI). Total assets had a positive relationship with diversification while efficiency ratio had a negative relationship. The study recommends that commercial banks should integrate technological innovations such as mobile banking to drive diversification which will in turn lead to better performance. It is suggested that future studies can be extended to other financial institutions such as deposit taking SACCOs and microfinance banks.