Effect Of Fintech Firms On Financial Performance Of The Banking Sector In Kenya

Abstract

The objective of the study was to determine how and the extent to which the financial performance of the banking sector in Kenya is impacted by the fintech sector. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the range of magnitude and effects of the fintech sector on the financial performance of Kenyan commercial banks. The study employed a causal research design. The target population was all the licensed forty four commercial banks in Kenya. Secondary sources of data were employed, and data was collected on; the earnings before tax, total assets, the number of registered mobile payment account users, the number of mobile payment transactions, and the value of the transactions. This was a longitudinal study and the unit period of analysis was quarterly. Data was collected for thirty quarters from July 2010 to December 2017. The study applied correlation analysis and multiple linear regression equation with the technique of estimation being Ordinary Least Squares so as to establish the association of the fintech sector and financial performance of commercial banks. When correlation analysis was conducted, the study established that a significant positive association exists between all the predictor variables included in the study and the banks‟ return on assets with a significance value of 0.000. Before conducting the regression analysis, two variables were dropped because of the presence of multicollinearity. All the predictor variables were significantly correlated. When the regression analysis was done the variable the number of registered mobile payment account users was revealed to have a positive significant relationship with the commercial banks average return on assets. It had a significance value of 0.000 which is greater than the critical value (α) of 0.05. It also had a T test value of 5.665 which lies out of range of the two tailed T test critical value of ±2.04523. The coefficient obtained implies that a unit increase in the number of registered mobile payment account users would lead to an increase in commercial bank performance by 1.206. The study concluded that that uptake of mobile payments and the banks‟ financial performance have a significant positive relationship. Thus, increased uptake of mobile payments leads to increased banks financial performance. The study recommended that the regulator, the Central Bank of Kenya, should recognize the role that fintech plays in the economy and try to incorporate it in the financial system and develop a regulatory framework for it. It also recommended that managers in the financial sector should use the study findings to establish a proper link between services offered by the fintech firms and bank specific factors to ensure that banks do not lose market share. Investors can also invest in banks stock as the financial performance will be on an upward trajectory influenced by the fintech sector.