Effect of Financial Technology on Profitability of Publicly Listed Banks in Kenya

Abstract

Financial technology endures to alter and shape the Kenyan banking sector. The Kenyan banking sector has progressively focused on financial technology as a strategic instrument to achieve organization goal of reducing costs and maximizing revenues. Despite this, commercial banks have performed inconsistently in relation to profitability, with some recording a rise in ROA whereas others experiencing a decline. The main aim of this research was to establish fintech effect on profitability of listed banks in Kenya. The independent variables for the research were mobile banking, internet banking and agency banking while the control variables were asset quality, firm size and capital adequacy. The dependent variable was profitability measured using ROA. The study was guided by financial intermediation theory, diffusion of innovation theory and technology acceptance model. Descriptive research design was utilized in this research. The 11 listed banks in Kenya as at December 2021 served as target population. The study collected secondary data for five years (2017-2021) on an annual basis from CBK and individual listed banks annual reports. Descriptive, correlation as well as regression analysis were undertaken and outcomes offered in tables followed by pertinent interpretation and discussion. The research discovered a 0.6023 R square value implying that 60.23% of changes in listed banks profitability can be described by the six variables chosen for this research. The multivariate regression analysis further revealed that individually, mobile banking and internet banking have no significant effect on profitability of listed banks in Kenya. However, agency banking produced positive and significant values for this study (β=0.0109, p=0.003). Both firm size and capital adequacy have a positive effect on profitability of listed banks as shown by (β=0.3082, p=0.000) and (β=0.1305, p=0.007) correspondingly. Asset quality displayed a negative and significant profitability influence as shown by (β=-0.5718, p=0.021). The study recommends that listed banks should enhance their agency banking as this will contribute significantly to their profitability. Further, the study recommends the need for listed banks to reduce their credit risk as it adversely affects profitability in a negative way. Future research ought to focus on other financial institutions in Kenya to corroborate or refute the conclusions of this research.