Effect of Financial Technology on Financial Performance of the Banking Industry in Kenya

Abstract

There has been an immense increase in financial technology utilization in the global financial sector. This has promoted efficiency in operations of the banking sector like the internet and electronic payment among others that have enabled cost savings. This has in turn improved service provision quality by the banks globally. Evidence shows that development practitioners are continually having the conviction that the outreach arising because of fintech will lead to enhanced financial performance among banks. This research sought to determine how financial technology impacts financial performance of the banking industry in Kenya. The independent variable for the study was financial technology operationalized as agency banking, mobile banking, internet banking and ATMs. The control variables were economic growth represented by economic growth rate, exchange rate represented by Kenya shilling to US dollar and interest rates measured as the average bank lending rate on a quarterly basis. The dependent variable was financial performance of the banking industry measured as ROA. A period of 10 years between January 2010 and December 2019 was studied through gathering of secondary data. Descriptive research design was employed while multiple linear regressions model was useful in the analysis of the association between the variable. The data was analyzed by use of SPSS version 23. An R-Square value of 0.625 was produced from the study results which meant that 62.5% of the disparity in financial performance of Kenya’s banking industry is attributed to the independent variables while 37.5% in variations of financial performance of the banking industry was related to the variables that were not part of this study. ANOVA findings showed the F statistic was substantial at 5% level with a p=0.000. Henceforth, the model was appropriate in justifying the relation amongst the specified variables. In addition, it was established that internet banking, economic growth rate and interest rate had positive substantial values for the investigation while agency banking, mobile banking and ATMs produced positive but weak values in the investigation. Finally, exchange rates produced negative and limited impact on financial performance of the banking industry in Kenya. It is the recommendation of this study that measures ought to be adopted that will enhance internet banking, economic growth rate and interest rate as these measures have a substantial influence on performance of the banking industry in Kenya.