DIGITAL BANKING CHANNELS AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN MOMBASA COUNTY, KENYA
Main Article Content
Abstract
The purpose of the study was to investigate the effect of digital banking channels on the financial performance of commercial banks in Mombasa County. The digital banking channel constructs included digital cards, internet banking, mobile wallets, and mobile loan apps and their effect on financial performance. The study was anchored on financial intermediation theory, transaction cost innovation theory, and innovation diffusion theory. A cross-sectional descriptive survey research design was adopted. The target population was all commercial bank branches operating in Mombasa County, with branch managers as the unit of observation. Stratified random sampling was applied, and Yamane formula was used to arrive at a sample size of 84 respondents. Primary data were collected using research questionnaires, while secondary data were obtained through a data collection sheet. A pilot test was conducted to establish validity and reliability. Data analysis involved descriptive and inferential statistics using Statistical Package for Social Science (SPSS), and results were presented in frequency and descriptive tables. The findings revealed that all four digital banking channels; digital cards, internet banking, mobile wallets, and mobile loan apps were positively and significantly related to the financial performance of commercial banks. Regression analysis showed that digital cards had the strongest effect on financial performance, followed by mobile loan apps, internet banking, and mobile wallets. Collectively, the four constructs explained 62.9% of the variation in financial performance. The study concluded that the adoption of digital banking innovations enhances profitability, customer growth, cost reduction, and market expansion. It was concluded that digital cards improve service delivery and accessibility, internet banking enhances efficiency and customer trust, mobile wallets expand financial inclusion, and mobile loan apps diversify revenue streams. The study recommended that commercial banks should continue strengthening their digital card services by expanding acceptance points and security features; invest in secure and user-friendly internet banking platforms; enhance mobile wallet functionalities, including offline access and bill payment services; and strengthen mobile loan apps by integrating them with authentication systems and diversifying credit products.
Article Details
References
Aker, J. C. & Mbiti, I. M. (2016), Mobile Phones and Economic Development in Africa, Journal of Economic Perspectives, 24(3), pp. 207–32.
Bett, F. C. & Bogonko, J. B. (2017). Relationship between digital finance technologies and profitability of banking industry in Kenya. International Academic Journal of Economics and Finance, 2(3), pp. 34-56.
Bryman, A., & Bell, E. (2016). Business research method. (2nd ed.) Oxford: Oxford University Press
CGAP (2020). What is Digital Financial Inclusion and Why Does it Matter? 10 March 2015. Available at: http://www.cgap.org/blog/what-digital-financial-inclusion-and-why-does-it-matter accessed 31 January 2025.
Central Bank of Kenya (2020), Banking sector innovation survey 2020. CBK Publication
Central Bank of Kenya (2022), Financial Access Household Survey 2021. A publication of CBK. Retrieved from https://www.centralbank.go.ke/uploads/financial_inclusion/2064908903_2021%20FinAccess%20Survey%20Report%20Launched_29%2Jan%2025.pdf
Clarke, T. & A. Finney (2018), Measuring Financial Capability in Children and Young People: What drives financial behaviour? Money Advice Service, Social Research and Statistics.
Creswell, J. W. (2016) Choosing a mixed method design.04-Cresswell (Designing) 45025.qxd 5/6/2006 8.35pm pp62.Retrieved from http://rds.epi-ucsf.org
D’Silva, D, Filkova, Z., Packer, F. & Tiwari, S. (2019), “The design of digital financial infrastructure: lessons from India”, BIS Paper no 106.
Faux, Z. (2020), Tech Startups Are Flooding Kenya With Apps Offering High Interest Loans, Feb 2020, https://www.bloomberg.com/news/features/ 2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-highinterest-loans
FinAccess (2021), 2021 FinAccess household survey report, available at: https://www.knbs.or.ke/wp-content/uploads/2021/12/2021-Finaccess-Household-Survey-Report.pdf.
Frost, J., Gambacorta, J., Huang, Y., Shin, H. S., & Zbinden, P. (2019), BigTech and the changing structure of financial intermediation, Economic Policy, 34(100), pp 761–99.
Gambacorta, Y., Huang, Z., Li, H., Qiu & Chen, S. (2020), Data vs collateral, BIS Working Paper, 881.
Hansen, S. (2019), Mobile lending App Branch partners with Visa, announces $170 million in fresh funding, Apr 2019, https://www.forbes.com/sites /sarahhansen/2019/04/07/mobile-lending-app-branch-partners-with-visa -announces-170-million-in-fresh-funding/?sh=4bfcd60a3e90/.
Hau, H., Huang, Y., Shan, H. & Sheng, Z. (2020), FinTech Credit and Entrepreneurial Growth, Working Paper.
Hua, X. P. & Huang, Y. P. (2020), Understanding China’s fintech sector: development, impacts and risks, The European Journal of Finance
ITU. (2016). The Digital financial services ecosystem. Technical Report. ITU Focus Group.
Iftekhar, H., Schmiedel, H., & Song, L. (2017). Return to retail banking and payments. Working Paper Series 1135, European Central Bank.
Jack, W. & Suri, T. (2018), Mobile money: The economics of M-PESA, National Bureau of Economic Research, Tech. Rep., 2018
Kariuki, J. (2018). Kenyans have become prisoners of mobile loan Apps, shows study. Daily Nation March 25. Accessed Jan 3rd 2025 https://www.nation.co.ke/business/Kenyans-have-become-prisoners-of-mobile-loan-Apps--shows-study/996-4356726-tbxo52/index.htm l
Lenka, S. K., & Bairwa, A. K. (2018). Does financial inclusion affect monetary policy in SAARC countries? Cogent Economics & Finance, 4(1), 1127011.
Malek, B., Shabudin, A., & Mohtar, S. (2017). The factor that affects the effectiveness of agent banking characteristics on financial inclusion performance: A study from Malaysian government-owned banks in Negeri Sembilan. Journal of Advanced Research in Business and Management Studies, 1(5), pp. 91-102.
Memba & Njeru (2018). The Effects of electronic Banking on Financial Services in Ghana. Research Journal of Finance and Accounting, 6, pp. 147-154.
Norfund (2022), Banking the unbanked. Retrieved from https://www.norfund.no/banking-the-unbanked/
Olusesan M. A., Oluwanishola A. O., & Williams, O. S. (2016). Technological Assessment of Banking Innovation in Nigeria. African J. Accounting, Auditing and Finance, 2(2), 157-183.
Olweny, T., & Shipho, T. M. (2017). Effects of banking sectoral factors on the financial performance of commercial banks in Kenya, Economic and Finance Review, 1(5), 1-30.
O’Regan, G. (2018). Automated Teller Machine. In The Innovation in Computing Companion (pp. 45-47). Springer, Cham.
Poushter, J. (2016), Smartphone ownership and internet usage continues to climb in emerging economies, Pew Research Center, 22,(1), pp. 1–44, 2016.
Young, T. J. (2015). Questionnaires and surveys. In H. Zhu, Research methods in intercultural communications: A practical guide (pp. 165-180). Oxford: Wiley. doi:10.1002/9781119166283.ch11.