Effect of Technological Financial Innovations on Financial Performance of Commercial Banks in Kenya

Abstract

Technology has enabled the undertaking of banking transactions in a variety of mediums.It is true to suffice that through adoption of technological tools business processes have been able to undertaken more effectively and cost efficiently. The banking sector has not been left behind in adopting technology in offering banking services to its customers. These innovations include use of automated Teller Machines, agency banking, Electronic Funds transfers, real time gross settlements and mobile banking. However, the exact position of technological financial innovations has not been studied conclusively. It is for this reason that this study was undertaken. This study was inspired by the fact that most of the commercial banks in Kenya had adopted such innovations but still recorded reduced earnings. In light of this gap in literature this study purposed to establish whether the selected innovations had influence and to whether the influence was significant on financial performance. The studies objective was to assess the effect of technological financial innovations on financial performance of firms, evidence from commercial banks in Kenya. This study was based on three theories: financial intermediation theory, innovation diffusion theory and Silber constraints theory of Financial Innovations.This study adopted a descriptive research design. The target population for this study were all commercial banks. This study had a sample size of 15 commercial banks.Secondary data was collected from 2012 to 2016 from various commercial bank annual report, website & CBK bank report.The study adopted a panel data analysis. The findings were reported using the Prais Winstein regression model. Agency banking and use of ATMS had positive but minimal effect on financial performance of banks. The control variable, credit risk was revealed to have a negative and insignificant effect on financial performance of banks. Bank liquidity had a negative and significant effect on financial performance of banks.The study recommend that banks need to adopt financial innovations since they had positive effect on performance of banks. Equally, it is important for banks to establish robust risk identification, assessment and control measure in order to improve financial wellness.