The effect of financial innovation on the Financial performance of Commercial Banks in Kenya

Abstract

Kenya has evolved in financial innovations over the years, her being home to an early entrant form of mobile money banking, with world class standards: M-PESA. This innovation and evolution of other new technologies in financial innovations in Kenya, lead to motivation of this study. The study established the effect of financial innovation in the performance of commercial banks in Kenya. To achieve this objective the researcher collected data of four variables: mobile banking, agency banking, automated teller machines and plastic card usage. Data was collected by secondary method from central bank. Data was then analyzed by SPSS using linear regression. The study found out that mobile banking, automated teller machines and card usage had positive effect on performance of commercial banks in Kenya. The most important attribute that managers must consider immensely before making decisions is agency banking according to the study; it showed a negative effect on performance of banks. Although the study established that financial innovations affected commercial banks performance, it is notable that none of the tested variables was significantly related to performance of commercial banks in Kenya. However there was need for more research and innovation to create up to date innovations and improved customer services in commercial banks. Since agency banking, mobile banking, ATMs and card usage innovations still faced security challenges as cases of fraud and loss of resources could cause setbacks, authorities need to set appropriate environment and motivate innovators to better performance of commercial banks hence improving Kenya’s economy