The Effect of Cashless Transactions and Financial Trading Income on Non-funded Income in Commercial Banks in Kenya

Abstract

Commercial banks income structures over the years have mainly been dominated by interest income generated from loans and advances to customers followed distantly by non-funded also known as non-interest income. However in recent years Banks have increasingly been generating income from off-balance sheet business and fee income. Technological advancements have greatly increased product base in banks leading to new revenue streams such as mobile banking, card usage, online banking and cashless transactions through bank agents and merchants. The study sought to establish the effect of cashless transactions and financial trading income on non-funded income in commercial banks in Kenya. The research design employed in this study was descriptive in nature. The target population in this study was the 43 commercial banks that were fully registered with CBK by December 2013. The data used in this study was quantitative in nature. The secondary data for five years (2009-2013) was obtained from annual publications by central bank as well as financial statements of commercial banks. This includes statement of financial position and directors reports. Multiple linear regression Analysis was used to examine the relationship between cashless transactions income, financial trading income and non- funded income in commercial banks in Kenya. From the regression model, the study found out that there were factors influencing the non-funded income of commercial banks in Kenya, which are cashless transactions income, financial trading income, banks interest rates, inflation and size. They either influenced it positively or negatively. The study found out that the intercept was 4.312 for all years. The five independent variables that were studied (cashless transactions income, financial trading income, banks interest rates, inflation and size) explain a substantial 89.3% of non-funded income in commercial banks in Kenya as represented by adjusted R2 (0.893). The study established that the coefficient for cashless transactions income was 0.537, meaning that cashless transactions income positively and significantly influenced the non-funded income in commercial banks in Kenya. The study also established that the coefficient for financial trading income was 0.707, meaning that financial trading income positively and significantly influenced the non-funded income in commercial banks in Kenya. The study concluded that cashless transactions income and financial trading income have a positive effect on non- funded income in commercial banks in Kenya. The study recommended that banks should conduct research on other possible mobile money services packages that are user friendly and develop them so as to enable deposit/withdraw of money using mobile phone which will meet different customer requirements and capture market niches that competitors have not identified hence expand on the market share leading to improved non-funded income.