The Relationship Between Fintechs and Financial Performance of Commercial Banks in Kenya

Abstract

Fintechs are a part of an emerging sector that uses technology to offer financial services to deliver extremely improved financial services. Kenya has witnessed an increase in the utilization of Fintechs from 26.7% in 2006 to 83.7% in 2021 (KWS, 2022). The upsurge has enhanced financial innovations and inclusion within the country, enabling affordable and accessible financial services through mobile and digital platforms. The study sought to investigate the relationship between fintechs and financial performance of commercial banks in Kenya. A descriptive research methodology was adopted. Target population was the entire forty commercial banks in Kenya. Secondary sources of data were employed for; return on assets, value of mobile transactions, number of mobile transactions, and number of agents through quarterly unit period .Secondary data was collected from March 2012 to December 2021 from quarterly financial reporting. Correlation analysis and multiple linear regression method utilizing ordinary least square regression estimate was used to investigate the relationship between fintechs and financial performance of commercial banks in Kenya. Multicollinearity indicated all the variables were suitable for the study. . The correlation test indicated all the variables were correlated and statistically significant. The findings also indicated that, the value of mobile transactions was statistically significant (P < 0.05). The study’s inference is that the value of mobile transactions significantly influences the performance of commercial banks in Kenya. The study recommends that through regulating commercial banks (CBK), the government of Kenya should review and redesign mobile transactions security policies that protect the customers, banks, and fintechs, thus enhancing profitability. Further commercial banks should develop a good link with fintechs companies to attract and retain clients and CBK and commercial banks managers should continuously review and redesign their credit policy to mitigate liquidity and asset quality risks thus enhancing return on investment.