Effects Of Digital Banking On Banking Sector Performance In Kenya

Abstract

In the recent past the bank's financial performance has benefited when expenses are kept to a minimum through adoption of different financial innovations. Some of these financial innovations include digital banking which has helped banks to significantly cut on the high labour expenses by providing digital services that are oftenly automated. Therefore, the goal of the research is to establish how digital banking has affected Kenya's banking industry's performance. The study was founded on these theories; financial intermediation theory, innovation diffusion theory and modern economics theory. Financial performance of the banking sector was measured using the Return on Assets (ROA) of the banking sector while the components of digital banking discussed in this study included card transactions, mobile money transactions, ATM transactions and Agency transactions. The research was conducted using a descriptive research approach. The research data used in this study was secondary data obtained from the CBK bank supervisory reports, as well as revenue earned from ATMs and POS and electronic banking as well as the natural log of total assets for each bank. This was between the year 2011 to 2020 and on a quarterly basis. The results of the study revealed that the trend analysis of all the study variables analysed had an increasing trend. The correlations results also indicated that internet banking, mobile banking, Point of Sale (POS), ATM and total assets had a positive and significant relationship with ROA. The study also found that internet banking, mobile banking, Point of Sale (POS), ATM and total assets had a positive and significant effect on ROA. Therefore, The study came to the conclusion that the financial performance of Kenya's banking industry is positively and significantly impacted by digital banking. The study advocated that the management of banks should seek for innovate strategies to increase the efficiency of the different digital banking practices and ensure customer satisfaction. The study also recommended that the bank regulatory agencies should implement comprehensive digital banking regulations so as enable banks to invest more on digital banking and other financial innovations.