Effects Of Digital Innovations On Financial Performance Of Commercial Banks In Kenya

Abstract

In the current world of cutthroat Competition, it is essential that business decisions lead to a better competitive advantage rather than just a transformation from the traditional way of doing things. Commercial banks in particular and especially in Kenya are operating in a competitive advantage which has been compromised by the current capping of interest rates limiting banks’ freedom of pricing and thus levelling their playing ground. The levelling of the playing ground has led banks to a situation of less freedom and increase in competition but it has been argued by the policy makers that it is for the good of the economy in general. Considering that banks are investments for individuals and also that they hold peoples wealth in form of deposits and the many services they offer to the economy, banks’ financial performance plays a centre role in the economy. As part of their endeavours to be competitive, banks have advanced in technological use through technology driven operations. Some of these include the use of ATM machines, use of credit and debit cards, operation of POS systems, adoption of mobile banking, and use of mobile lending among other innovations. These innovations have been argued as advantageous in some ways like saving on costs but this study has evaluated their relevance as far as financial performance is concerned. The study evaluated the use of credit card through the number of transactions, POS transactions, number of agents and also the number of mobile payment transactions. The study has found a positive impact on financial performance by the number of credit card transactions and the number of mobile payment transactions. This suggests that banks can advance on their performance by emphasising on those two technological innovations. The study also found that number of POS transactions and the number of agents affect financial performance as measured by profits made negatively though insignificant. The study suggests that the banks be more cautious when using the two innovations to avoid affecting the financial performance of their enterprises negatively