Effect of Mobile Money Innovations on the Financial Performance of Commercial Banks in Kenya

Abstract

A lot of reforms have been undertaken in the banking sector in Kenya that have led to mobile money innovations of bank products, activities and increased the efficiency of the financial system. All these developments coupled with changes in the international financial environment and the increasing integration of domestic and international financial markets have led to rapid mobile money innovations. The rising importance of the financial sector in modern economies, as well as the rapid rate of innovation in that sector, has generated a research interest in commercial banks financial performance through mobile money innovations. This study sought to determine the effect of mobile money innovations on financial performance of commercial banks in Kenya. The study’s population was all the 42 commercial banks operating in Kenya. The independent variable for the study was mobile money innovations as measured by natural logarithm of total value of transactions through mobile money innovations. The control variables were liquidity as measured by the current ratio, firm size as measured by natural logarithm of total assets and capital adequacy as measured by the ratio of gross loans and advances to total assets. Financial performance was the dependent variable which the study sought to explain and it was measured by return on assets. Secondary data was collected for a period of 5 years (January 2013 to December 2017) on an annual basis. The study employed a descriptive cross-sectional research design and a multiple linear regression model was used to analyze the association between the variables. Data analysis was undertaken using the Statistical package for social sciences version 21. The results of the study produced R-square value of 0.312 which means that about 31.2 percent of the variation in the Kenyan commercial banks’ financial performance can be explained by the four selected independent variables while 68.8 percent in the variation of financial performance of commercial banks was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with financial performance (R=0.558). ANOVA results show that the F statistic was significant at 5% level with a p=0.000. Therefore the model was fit to explain the relationship between the selected variables. The results further revealed that capital adequacy and bank size produced positive and statistically significant values for this study. The study found that mobile money innovations and liquidity are statistically insignificant determinant of financial performance of commercial banks. This study recommends that measures should be put in place to enhance capital adequacy and bank sizes among commercial banks as this will improve their financial performance.