The Impact of Financial Technology on the Operational Efficiency of Licensed Commercial Banks in Kenya

Abstract

FinTech businesses exhibit high welfare-enhancing capabilities to individuals and the business establishments but disruptive to the banking sector whereby regulation should appropriately adapt so the outcomes of the new technology are achieved without destabilizing the financial market. The outcomes of the new techniques results in lower costs of financial intermediation and product improvements for the consumers. Thus, FinTech involves the development of new products and services or production process that results to effective and efficient operations. The objective of this research was to assess the effect of financial technology on the operational performance of licensed commercial banks in Kenya. In addition, the study specific objectives were to determine the effect of internet banking, mobile banking, mobile loans, and agency banking, on operational performance of licensed Kenyan commercial banks. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavoured to examine the range of magnitude and relations between financial technology and operational performance. The target population was all the 42 licensed commercial banks. Secondary sources of data were employed. Panel data was utilized, data was collected for several units of analysis over a varying time periods. The research employed inferential statistics, which included correlation analysis and multiple linear regression analysis so as to establish the effect of financial technology on operational performance. The study findings were that financial technology had a significant effect on operational performance and thus, it can be utilized to significantly predict operational performance. Further findings were that that the FinTech components that include; internet banking, mobile banking, mobile loans, and agency banking have no significant association with operational performance. Final findings were that the only FinTech component that significantly impacted on operational performance of was internet banking which had a significant negative relationship with the operational performance. The rest of the FinTach components did not individually significantly impact on operational performance. Policy recommendations are made to the National Treasury and CBK to direct commercial banks, and by extension other financial institutions, to employ financial technology so as to enhance cost efficiency and consequently financial performance of the financial institutions. Further recommendations were made to the commercial bank practitioners, and by extension, other financial institutions practitioners and consultants to implement and improve on financial technology enhance in order to augment the financial institutions’ operational performance. Additional recommendations to the commercial bank practitioners, and by extension other financial institutions practitioners and consultants, were to concentrate mainly on internet banking in order to augment the financial institutions’ operational performance. However, the finding that internet banking had a significant negative relationship with the operational performance needs further investigation because most of the empirical literature sight a positive relationship between the two variables.