Effect of Financial Technology on Profitability of Commercial Banks in Kenya

Abstract

Banks in Kenya have made significant investments in fintech to tackle issues about competition, income and cost. The critical issue is whether financial institutions that have adopted fintech have a cost advantage over those that have not. This research aimed at bringing out the effect0that financial0technology has0on0financial performance0of0commercial banks in0Kenya. It was established from the research that mobile banking,0agency0banking, internet banking and ATMs0has an effect on financial performance0of0banks in Kenya. The control variables used in the model were; Bank0size,0credit0risk and capital adequacy. The research design adopted was Descriptive research design.0The0target population in this research was the banks0in Kenya. As at 2020, there were 42 banks0in0Kenya but only 37 of them were able to provide a complete0set0of data. The data for0the research variables0were obtained from CBK and the audited annual0financial0statements for the banks as from 2016 to 2020. The research hypotheses were tested using correlation and regression by determining the relationship between ROA and financial technology. The results showed R2 being 0.448 implying that the independent0variables selected contributed to0variations0in ROA by 44.8%. It was further established from the study that the agency banking0(β=0.106,0p=0.008), internet banking (β=0.133, p=0.000), mobile banking0(β=0.113,0p=0.000) and bank0size0(β=0.411,0p=0.000) were positively and significantly related to ROA among0banks0in0Kenya.0A0negative significant relationship was established between Credit risk and ROA (β=-0.506,0p=0.000)0while capital adequacy and were0not0statistically0significant. This study0recommends that policy0makers should provide an environment that allows banks to utilize financial technology since it enhances their performance. Directors and managers of commercial banks need to work towards improving the coverage of financial technology with the aim of enhancing their financial performance and ensuring that they remain competitive in an environment that is ever0changing.