The Effect Of Online Banking On Cost Efficiency In Commercial Banks In Kenya

Abstract

The banking industry locally and internationally has continued to embrace adoption and implementation of online banking products and services given the discussed benefits that arise, such as lowering operations cost quick and convenient delivery of services to customers and value addition to the banks services this in turn has increased the number of customers and transactions hence higher profits. The role of online banking on efficiency and cost reductions in the banking sector is paramount to the successful and profitable service delivery in the sector. Online banking plays a significant role in improving the efficiency of the banking sector as well as reducing the costs of banking transactions for customers. The banking sector has, for the past decade, witnessed various improvements and new technologies with the main purpose of improving the service delivery of the banking sector. The research objective was to determine the effect of online banking in cost efficiency in commercial banks in Kenya. A quantitative research method was followed and the data was analyzed using chi-square tests. Empirical analysis has been conducted on a panel data of 7 Kenyan banks and specifically the one using online banking for the period 2008-2012. Accounting data were used to measure the banks' performance and regressed on relevant variables using multiple regressions. The data was then checked for completeness and errors, coded and data entered in SPSS for analysis whereby by quantitative analysis was used and content analysis used on qualitative data. The data was then presented in form of tables, graphs, charts and in prose form for qualitative data. The results show that online banking has a significant positive impact on banks' performance. Online banking has improved the performance of these banks. As a result of adopting online banking, costs associated with adopting online banking are lower than revenues from provision online services. Hence, banks should focus its work to promote the confidence of online banking services and encourage the customers to use this kind of services and make it more secure to avoid unnecessary costs.