Effect of Digitization of Financial Services on the Liquidity of Commercial Banks in Kenya

Abstract

The objective of the study was to investigate how liquidity of Kenyan banks is impacted through electronic banking. The goal of the study was to ascertain how Automated Teller Machines (ATMs), internet banking, and mobile banking affected the banks' liquidity. The major source of income for the banks is loan interest. Liquidity is crucial to a bank's sustainability since commercial banks use short-term consumer deposits to support long-term loans. The availability of cash, a crucial operating instrument, affects how successfully banks function. Bank liquidity was impacted by worries about how electronic banking is developing. In Kenya, 43 commercial banks were studied. The research design used a descriptive study method. The research was carried out during a five-year period, from 2015 to 2020.Secondary data was provided by the Kenyan Central Bank and the targeted banks. The explained variable was liquidity, and the explanatory variables were the bank's size, ATM banking, and internet banking, and mobile banking. Average values for total assets, average internet transaction values, average ATM transaction values, and average mobile banking transaction values were used to calculate these variables. The 43 commercial banks in Kenya were evaluated using their current ratios as a liquidity indicator. According to the study, there is a considerable positive association between liquidity and digital financial services in Kenyan commercial banks, with a 95% degree of confidence. Internet banking has the least impact on liquidity when compared to ATM banking. Mobile device accessibility and banks' benefit in terms of increasing transaction volume and value thanks to major financial investment in mobile banking technology. Many organizations are adopting electronic banking to profit from its efficiency, accessibility, flexibility, and lower costs.