Effect of Technological Financial Innovations on Financial Performance of Commercial Banks in Kenya

Abstract

Adoption of technological innovations has enabled businesses operations to be undertaken more effectively and efficiently. The banking sector in Kenya has adopted these technological innovations in offering banking services to its customers. These innovations include use of Automated Teller Machines, Agency Banking, Electronic Funds Transfers, Real Time Gross Settlements and Mobile Banking. The objective of this study was to assess the effect of technological financial innovations on financial performance of commercial banks in Kenya. The study was anchored on Financial Intermediation theory, Innovation Diffusion theory and Silber Constraints theory of Financial Innovations. The study adopted a descriptive research design with a target population of all commercial banks in Kenya, where a sample of 15 commercial banks was reached for data collection. Secondary data for a period of 2012to 2016 was collected from respective commercial banks, banks annual reports, website and Central Bank of Kenya reports. Descriptive and inferential statistics was used to analyze data. The results indicate that, Agency Banking and use of Automated Teller Machines had positive effect on financial performance of banks. The control variable, credit risk had a negative and insignificant effect on financial performance of banks. Bank liquidity had a negative but significant effect on financial performance of banks. The study conclusion was that technological financial innovations had positive effect (R² of 0.681) on financial performance of commercial banks. Equally, the study recommended that it is important for commercial banks to establish robust risk identification, assessment and control measure and adhere to the liquidity guidelines that is issued by the Industry regulator- Central Bank of Kenya, in order to improve their financial wellness.