Effect of Financial Technology on Operational Efficiency of Commercial Banks in Kenya

Abstract

The banking sector has witnessed continuous increase in financial technology in the past five years and there is a necessity to establish the association amongst the developing financial technology and financial institutions operational efficiency in Kenya. The current study sought to investigate how fintech influences the operational efficiency among banks in Kenya as they play a key role in financial intermediation and inclusion. The independent variables for the research were mobile banking, internet banking and agency banking. Asset quality, capital adequacy and bank size were the control variables while the dependent variable was operational efficiency measured as the ratio of interest income to total assets. 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 41 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 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 conclusions yielded a 0.372 R square value implying that 37.2% of changes in banks operational efficiency can be described by the six variables chosen for this research. The multivariate regression analysis further revealed that individually, mobile banking has a positive and significant effect on operational efficiency of banks (β=0.164, p=0.000). Internet banking and agency banking exhibited a positive but not statistically significant influence on operational efficiency. Asset quality has a negative effect on operational efficiency of banks (β=-0.159, p=0.000). Capital adequacy and firm size exhibited a positive and significant operational efficiency influence as shown by (β=0.741, p=0.000) and (β=0.295, p=0.000) respectively. The study recommends the need for policy makers to provide a conducive environment for banks to undertake mobile banking as this enhances their operational efficiency. The study further recommends that banks should work at enhancing their asset quality as this will contribute to their operational efficiency. Future research ought to focus on other financial institutions in Kenya to corroborate or refute the conclusions of this research.