Blockchain Technology Application and Operational Performance in Financial Institutions in Nairobi, Kenya

Abstract

In the modern world, change is a constant feature, and financial institutions are no exception, with information technology (IT) being the major driver of these transformations. The unprecedented development in information communication technology has not only opened doors of opportunities to change but has also revolutionized the interactions of financial institutions with their customers. The primary objective of this study was to investigate the impact of blockchain technology on the operational performance of financial institutions in Kenya. Specifically, the research aimed to assess the extent to which financial institutions in Nairobi, Kenya employ blockchain technology, identify the drivers influencing its adoption, explore the challenges faced in its application, and examine the relationship between the use of blockchain technology and the performance of financial institutions in Nairobi, Kenya. The study was guided by three foundational theories: the Resource-Based Theory, the Theory of Reasoned Action, and the Technology Adoption Theory. To achieve these objectives, a cross-sectional survey research design was employed, utilizing both descriptive and inferential statistics for analysis. Among the major findings were the predominant representation of middle-level management (60.7%), a notable proportion of respondents with 6-10 years of experience in the institution (51.8%), and a substantial presence of IT Managers (55.4%). Transitioning to the descriptive statistics on blockchain technology adoption, the study uncovered pivotal insights into the current landscape. Notably, financial institutions in Nairobi demonstrated a substantial application of blockchain technology in areas related to decentralized data functions, with mean scores above 3.4, indicating a large extent of adoption. These dimensions included decentralized data storage (Mean = 3.839), data replication across a wide area (Mean = 3.696), flexible data point scaling (Mean = 3.446), and distributed data mining (Mean = 3.339). In examining the drivers influencing the adoption of blockchain technology, the study identified key motivators for Nairobi's financial institutions. The significant mean scores for these drivers highlight the paramount importance placed on transparency, security, and efficiency in motivating the adoption of blockchain technology in the Kenyan financial sector. However, challenges to adoption were also evident. These findings underscore the multifaceted nature of obstacles faced by financial institutions, ranging from financial considerations to regulatory uncertainties. Additionally, key dimensions such as operational cost optimization (Mean = 3.982), quality assurance (Mean = 4.036), and customer loyalty (Mean = 4.054) demonstrated a strong emphasis on achieving efficiency, quality, and customer-centric outcomes. The regression analysis further illuminated the relationships between blockchain adoption dimensions and operational performance. Decentralization (B = 0.425, p = 0.001), Immutability (B = 0.319, p = 0.006), and Interoperability (B = 0.259, p = 0.023) all exhibited positive and significant coefficients, affirming their contributions to operational performance. The study recommends that policymakers should consider formulating clear and supportive regulatory frameworks tailored to blockchain technology. Given that evolving regulatory compliance emerged as a significant challenge, creating an environment that fosters innovation while ensuring compliance will be essential.