Influence of Banking Innovations on Financial Performance of Kenya Commercial Bank

Abstract

Given the importance of financial innovation in describing banking performance, the impact of innovation on performance remains unclear for two reasons: first, there is a lack of understanding of the sources of innovation; and second, the impact of innovation on bank performance has yet to be tested. The researcher aim was to ascertain what exactly affects the financial performance of Kenya Commercial Bank (KCB) in Nairobi County in Kenya. There are numerous elements that affect performance, this study will focus on banking innovations that are thought to drive financial performance. The study was divided into three main common areas that have recently caught the attention of the banking industry namely internet banking agency banking and mobile banking that affect the financial performance of KCB bank Nairobi County. Nairobi County has been chosen since it is the capital City and an epicenter of numerous commercial activities. The study’s specific objectives were to determine the influence of agency banking, mobile banking, Automated Teller Machines and debit and credit cards on financial performance of commercial banks in Kenya. This study was guided by Agency theory and Schumpeter theory of innovation. The study employed a descriptive research design. The study had a target population of 294 respondents. The sample size was 169 staff of KCB bank spread across the branches in Nairobi County. Respondents were selected using purposive random sampling. Structured questionnaires was used to collect primary data from respondents while secondary data was obtained from KCB, Central Bank of Kenya (CBK), Nairobi Stock Exchange (NSE) and annual financial reports from the KCB bank. Measures of central tendencies was used to describe the results and data presented using graphs charts and tables.The effect and influence of in dependent and independent variable was depicted by use of multiple regression. From the findings, agency banking was found to be the most significant factor influencing financial performance with a p-value of 0.00. It can be concluded from the findings that agency banking has a positively relationship with commissions fee based income and positively relates to interest  fee based income. Internet banking positively relates to commissions fee based income and positive relate to interest based income. Internet service has contributed to expansion of the income generating potential of commercial banks. Automated Teller Machine (ATM) system compensates for wrongful deductions and the ATM problems are settled to clients’ satisfaction. Debit & credit cards have had a positive effect of increasing commission fee based income and have influenced positively the increase of interest based income. Further study ought to be conducted on effectiveness of banking innovations on financial performance of other commercial banks since this was a case of KCB bank. This may provide more understanding on how the different banking innovations affect financial performance of the banks. The study recommends that agency banking should be enhanced by increasing the number of agency banking points across the country. The management of the bank should also enhance mobile banking by developing customer friendly mobile applications to enhance transactions by the clients. Therefore the bank management should make sure they increase the ATMs and enhance their innovation that touches on transactions through ATMs. The bank should also enhance the debit and credit cards by liasing with the cutomers to get their suggestions on how to improve the debit and credit cards.