The effect of alternative banking channels on financial Performance of commercial banks in Kenya

Abstract

The advance of communication and computer technology has made it possible for people to carry out banking transactions from any location. In an effort to reach the unbanked people and financial institutions outreach on alternative banking channels, a revolution in the range of payment solutions has been witnessed. However, alternative banking channels are faced with various challenges which raise concerns on their impact on the profitability of banks. Such challenges include lack of customer confidence, security concerns, system failures, cases of transaction errors and network failures. Further, despite the existence of alternative banking channels, bank halls continue to be congested which shows customers continue seeking services in bank branches despite presence of alternative banking channels. The objective of this study was to establish the effect of alternative banking channels on financial performance of commercial banks in Kenya. This study used descriptive research design. The target population was commercial banks in Kenya. The study used secondary data collected from banks annual financial reports and websites. The study was limited to a time scope of five years starting 2010 to the year 2014. Quantitative data collected was analyzed using descriptive and inferential statistics. Statistical Package for Social Sciences (SPSS V. 21.0) was used for data analysis. Regression model was used to establish the relationship between the study variables. The research findings were presented using tables and figures. The study established that 73.4% of the variation in financial performance of commercial banks in Kenya was explained jointly by operating expenses, agency banking, mobile banking and customer deposits based on obtained coefficient of determination (R2) of 0.734. Further, the study established that agency banking, mobile banking, customer deposits and operating expenses were positively related to financial performance of commercial banks based on obtained regression coefficients of 0.651, 0.016, 1.852 and 9.553 respectively. The study further established that the rate at which mobile banking was used declined since 2012. The study established that operating expenses increased in the year 2014 contrary to the other years. The researcher recommends to the management of commercial banks to adopt more alternative banking channels as well as exploiting more innovation that enhance alternative banking. Further, it is recommended that banks management investigate into the factors contributing to increase in operating expenses and put into place best practice to reverse the situation. Finally, bank management need to establish the level of awareness and conversance of customers on mobile banking