The Effect of Digital Innovations on the Financial Performance of the Banking Industry in Kenya

Abstract

Kenyan banks are hugely investing in technology-based innovations and training of workforce to use the new technologies. There is a need to study the relationship between the rising technology-based innovations of bank and the financial performance of the banks in Kenya to find out whether these innovations have contributed to the banks’ financial performance in Kenya. This research project has studied the innovations linked to mobile banking, internet banking, credit and debit cards, electronic fund transfer, mobile banking and agency banking. The innovations are studied in relation to the effects on financial performance of banks by use of indicator, return on total assets. The main objective of the study was to establish the effect of digital innovations on financial performance of banking industry in Kenya. Secondary data was used to carry out the research with focus on the banks listed. In the ending financial year 2017, there were 43 licensed banks in Kenya which are all targeted by the study and 1 mortgage financing institution. The researcher did a Statistical analysis using SPSS 22 (Statistical Package of Social Sciences) software. From the analysis, the findings were that these technological innovations have varied effects on the return on total assets and profitability as a whole. Findings also indicated that mobile phones contribute higher than internet services in influencing the financial performance of the banks in Kenya. From this study and findings, it is evident that some of the digital innovations have a positive effect on the industry’s performances and profitability thus the banks in Kenya should focus on even investing further in these technology-based innovations so that they can increase their income and impact on the economy. They should also engage the mobile phone providers as well as internet providers to penetrate further on innovations and reach even a larger customer base and grow their business. The project did not include all technology-based innovations because of time and a recommendation is made for other researchers to carry on further investigation that can be all inclusive.