Impact of Financial Innovation on Efficiency of Commercial Banks in Kenya

Abstract

The advancement in technology and increased need to innovate has greatly led to restructuring of various organizations in a bid to create departments that support innovation to keep up with the customer’s need for efficiency. This study objective was to determine the impact of financial innovation on the efficiency of commercial banks in Kenya. The study specifically looked at Bank Size/assets, Number of users of internet and mobile banking, Internet and mobile banking transactions as the variables. The study type used is descriptive study since it’s adequately defined by the design of the study and incorporated a good association of the variables studied on the impact of financial innovation on operational efficiency. The target population of the study which informs the research topic was 39 commercial banks in Kenya. The study utilized secondary data from yearly published and audited financial statements of the financial institutions under the survey. The study utilized statistical package for social sciences (SPSS) in data analysis. The study findings indicate a positive relationship between financial innovation and efficiency of commercial banks with an r squared of 0.710. This indicates that financial innovation variables on the study accounts for 71%. The study concludes that Number of users of internet and mobile banking and bank size and assets, and Internet and mobile banking transactions had varying degrees of impact on the efficiency of commercial banks in Kenya in the period under study. The effects of Internet and mobile banking transactions and number of users of internet and mobile banking on the efficiency was a strong positive while effect of bank assets was a weak degree of association with the efficiency.