E-Banking Strategy and Performance of Commercial Banks in Kenya

Abstract

Technological innovations in the aspect of electronic banking (e-banking) have progressively advanced and changed the manner in which banks offer services. The use of varied forms of technological innovations has become a key strategy that influences the competitiveness and performance of commercial banks. Subsequently, banks are investing more in adopting and implementing innovative e-banking strategies. Although numerous studies have inspected the effect of e-banking on banks across the world, the knowledge gap is that few studies have examined the impact of e-banking strategies on commercial banks’ performance in Kenya. The objectives of this study were to predict the impact of agency banking, mobile banking, the use of ATMs, and internet banking on the commercial banks’ financial performance in Kenya. Agency theory, contingency theory, diffusion of innovations theory, and technology acceptance theory formed the theoretical basis of this study. In its research design, the study used the descriptive approach. The target population comprised managers of 40 commercial banks and the study utilized the purposive sampling method to select 100 respondents comprising of 40 senior managers and 60 operations managers. Descriptive statistics, correlation, and regression analysis were used to analyze data. Correlation analysis indicated that mobile banking (r = 806, p = 0.000), agency banking (r = 0.737, p = 0.000), internet banking (r = 0.466, p = 0.000), and ATM banking (r = 0.547, p = 0.000) have statistically significant relationships with the commercial banks’ performance. Findings indicate that e-banking accounts for 71% (R2 = 0.710) of the variation in the commercial banks’ performance. Moreover, the study found out that e-banking strategies of agency banking and mobile banking are statistically significant predictors (p<0.01, while internet banking and ATM banking are statistically insignificant predictors (p>0.01). Based on these findings, the study concludes that rely on e-banking strategies in enhancing their performance, particularly mobile banking and agency banking. Furthermore, the study concludes that ATM banking and internet banking contribute minimally to the commercial banks’ performance in Kenya. Thus, the study recommends banks to optimize mobile banking and agency banking because they are statistically significant predictors while increasing awareness of internet banking and addressing insecurity issues of ATM banking. Thus, further research should consider establishing factors that account for the unexplained variances of 29% in the performance of commercial banks.