Effect of Electronic Banking on Performance of Commercial Banks in Kenya

Abstract

Purpose: The study sought to establish the effects of electronic banking on the performance of Commercial Banks in Kenya. The study specifically sought to establish the effects of mobile banking, Electronic Funds Transfer (EFT), Point of Sale Banking, and Automated Teller Machines (ATM) banking on the performance of Commercial Banks in Kenya. The study was anchored on the Technology Acceptance Model, Diffusion of Innovation Theory, and Perceived Characteristics Theory. Methodology: A descriptive research design in the form of a longitudinal was adopted in the study. The study targeted licensed Commercial Banks in Kenya. Secondary data was used in the study. The data was gathered from commercial banks' audited financial reports published by the Central Bank of Kenya between 2015 and 2019. The study employed both inferential and descriptive statistics in analysing the collected data. Both Statistical Package for Social Scientists (SPSS) software and MS Excel were adopted to generate the statistics. Findings: The study found a relatively strong relationship between independent variable and dependent variable. The combination of independent variables had a fairly predictive potential for financial performance. A proportional increase in the EFT values would significantly increase the return on equity (ROE). It implies that bank performance is positively affected by an increase in EFT banking at a significant level. Similarly, the findings indicated a significant increase in the total value transacted on PoS Machines as a proportion of Total Transaction Value, would increase the return on equity. This shows that bank profitability would increase with increased PoS banking. On the contrary, a percentage rise in the total value transacted via ATM as a proportion of total transactions by value would decrease the return on equity. Similar results were observed with regard to mobile banking’s influence on bank’s ROE. Unique contribution to theory, practice and policy: Thus, the study concluded that banks could reduce poor performance by having fewer amounts transacted via mobile banking agents and ATMs. On the other hand, banks can improve performance by encouraging increased values transacted via EFT and on POS Machines.