The Effect of Internet Banking on Customer Deposits in Commercial Banks in Kenya

Abstract

Internet banking has gained a lot of attention due to the advantages that are attributable to this resource in the banking industry. The objective of this study was to establish the effect of internet banking on customer deposits of commercial banks in Kenya. The study adopted used a descriptive survey since the study involved a survey of all commercial banks in Kenya. The study population included all 43 commercial banks licensed by Central Bank of Kenya, as at 31st December, 2013. Kothari (2004) notes that population is a total collection of elements. The study collected all the data from all the commercial banks since the population was small, (Appendix).The study used secondary sources of data since the nature of the study to be collected was quantitative. The sources of secondary data were obtained from central bank supervision reports, banks financial statements and annual reports. To achieve an adequate representation, the study will review secondary data for a period of five years (2009-2013) based on availability and accessibility of data. This data to be collected is specifically related to the number of customers who transact using internet sources from commercial banks; the volume of transactions that commercial banks handle based on internet banking technology and the deposits mobilized through internet transactions for example electronic fund transfers. The study focused on two main variables which were classified into dependent and independent variables. The dependent variable was measured using the percentage increase in customer’s deposits this will be achieved through checking the trend of customers’ deposits. The Independent variables which are; the number of transactions done using ATM per day, the number of transactions done using a phone per day, the amount of money borrowed using internet transactions, level of customer deposits were measured using domestic credit provided by banking system using internet channels as a percentage of GDP. A multiple linear regression analysis was conducted to assist the researcher in establishing the effect of internet banking on customer deposits in commercial banks in Kenya. The results of the regression analysis found that the overall regression model was statistically significant. The model showed a positive relationship between internet banking and customers’ deposits. This was explained by the following independent variables: level of customer deposits, amount of money borrowed, number of transactions and the amount of money transferred. The individual independent variables in the above model are, however, significant since all have a p-values are less than 5%. The study recommended that the government should develop and implement appropriate laws and required infrastructures; special legislation is needed and should be set especially for developing security standards and compliance to increase trust of citizens. These laws should fit the needs of each characteristic of e-city. These rules and regulations can be investigated by government in economic and social sectors. Laws regarding to electronic crime, privacy, free flow of information, consumer protection and e-commerce laws. The study further recommended that Kenya Bankers Associations should instigate regulations to ensure that commercial banks adopt internet banking in order to facilitate quick and continuous access to information by customers.