The Effect of Electronic Retail Payment Services on Financial Performance of Commercial Banks in Kenya

Abstract

Payment is one of the most essential services carried out within the banking industry, essentially, they account for a significant portion that pertains the operational costs and revenues. Besides, they are equally related to an augmented market share of banks, especially through credit provision. The goal/objective of this research is to establish the effect of electronic retail payment services on the financial performance of Commercial Banks in Kenya. This research was carried out based on various theories, which entails the Schumpeter theory of innovation, Coase theorem and diffusion of Innovation theory. The target population for the present study comprised of the forty-three commercial banks for a time of five years from 2011 to 2015. This study maximised on the secondary data of the banks as registered with the Central Bank of Kenya. The data included return on assets for commercial banks and the volume of transactions done through ATMs, Bank Agents and mobile banking over a given period. It also utilised the data on the number of as ATMs and Agents recruited by banks. The natural logs of the independent variables were used in the regression equation. The study revealed that the average ROA for all commercial banks was 2.6099, the average number of transactions for all commercial banks was 7, 207,348, the average number of ATMs for all commercial banks was 50, while the average number of number of agents for all commercial banks was 204 agents. The findings established that the adoption/use of electronic retail payment services has improved the performance in the banking industry through ensuring its productivity and efficiency is greatly improved. Electronic retail payment services have brought about a positive effect on the overall operations within the banking industry through making work easier for the management as well as the employees since it has been found to be the most effective and efficient service. Essentially, the adoption of such electronic retail payment services has greatly improved the prosperity of the Kenyan commercial banks. Indeed, the clients can now carry out most of the transactions outside the working hours, for instance, they can make withdrawals and still attend to their needs; the Central Bank of Kenya introduced the electronic retail payment systems guideline, which has intensely assisted the key players within the banking industry by making this type of payment services more effective. The study recommends that commercial banks need to invest heavily in technology as this will highly affect their financial performance. The Central Bank of Kenya, which is the regulator of the banks, also needs to monitor keenly the banks operations to ensure they are as par the set standards. The banks systems should be very secure to reduce chances of fraud occurring.