The Relationship Between Financial Innovation and Financial Fraud in Commercial Banks in Kenya

Abstract

This study sought to determine the relationship between financial innovation and financial fraud in commercial banks in Kenya. The study concluded that commercial banks had adopted process, product and institutional innovation which included use of credit cards, priority banking, unsecured loans, RTGS, mobile banking, internet banking, insurance services, credit reference bureaus and Islamic banking. Adoption of these innovation strategies resulted in more efficient and effective performance of duties hence made commercial banks more competitive. However there was a marked increase in occurrence of fraud in direct relation to the invention of more financial innovations hence there is need to ensure any new inventions are risk free and do not increase the vulnerability of commercial banks to fraudsters who are continuously evolving and becoming more sophisticated. The study suggests further research should be conducted in commercial banks to ascertain the most fraud prone innovation techniques and strategies. This could be extended to other financial institutions and industries within the economy that are rapidly adopting new cutting edge technologies.