Adoption of Digital Alternative Delivery Channels and the Financial Performance of Deposit-taking Savings and Credit Cooperative Organisations in Kenya

Abstract

Digital Alternative Delivery Channels (DADC) refer to those channels that expand the reach of services beyond the traditional bank branch channel, emerging due to innovations in information and communication technology and a shift in consumer expectations. The significance of Digital Alternative Delivery Channels lies in their ability to enhance accessibility and efficiency in the financial sector. These channels streamline operations, reducing costs for financial institutions and improving customer satisfaction. Measures of Digital Alternative Delivery Channels in this study focused on Unstructured Supplementary Service Data (USSD), digital wallets and Mobile Applications. The study thus sought to determine the effect of the adoption of DADC on the financial performance of Kenyan DT-SACCOs. The study used a descriptive research design in its analysis. The target population of the study included the 174 DT-SACCOs in Kenya. The stratified sampling technique was employed to select a representative sample of 94 DT-SACCOs stratified based on asset size into large tier, medium tier, and small tier. The study used both primary and secondary data in the analysis. The reliability and validity of the data collection tool was assessed. Internal consistency was evaluated using Cronbach's alpha, while construct validity was examined through the Kaiser-Meyer-Olkin (KMO) test and factor analysis. The results indicate that the tool was both reliable and valid, supporting its suitability for data collection in the study. From the results, USSD, digital wallets and mobile application adoption had a positive and significant relationship with DT-SACCOs' performance in Kenya. The correlation between digital wallet usage and DT-SACCO performance was positive at 0.564 and statistically significant (0.564, p=0.000<0.05), indicating that higher adoption of digital wallets is associated with improved performance. The correlation between the USSD adoption rate and DT-SACCO performance (0.548, p=0.000 < 0.05) and the correlation between mobile application adoption and DT-SACCO performance was also positive and statistically significant (0.554, p=0.000<0.05). From the results of regression analysis, the model estimated explains 69.4%. This implies that the variables digital wallet, USSD and mobile applications with the moderating effect of bank size are significant in providing explanations on the performance of DT-SACCOs. The interaction between digital wallet usage and bank size showed a negative, non-statistically significant relationship with DT-SACCO performance in Kenya, suggesting that larger bank size did not enhance results when paired with digital wallets. Meanwhile, USSD and bank size displayed a positive but also non-significant association with performance, indicating potential benefits that lacked statistical significance. Similarly, the mobile app and bank size interaction had a negative, non-significant relationship, revealing no substantial performance impact. These findings indicate that, despite directional variations, none of the digital channels paired with bank size meaningfully influenced DT-SACCO performance in Kenya. The study recommends that the DT-SACCOs under study ought to improve on the adoption of technology and the technological infrastructure where customers can utilize digital alternative delivery channels in carrying out financial transactions.