EFFECT OF DIGITAL FINANCIAL SERVICES ON PROFITABILITY OF COMMERCIAL BANKS IN KENYA: A CASE OF KENYA COMMERCIAL BANK

Abstract

The banking sector has experienced major revolution. The revolution has been brought about by modern technology and the need to minimize cost and increase revenues. In order to minimize costs commercial banks adopted digital financial services namely: Internet banking, automated teller machines, mobile banking and credit cards. However, despite the adoption of digital financial services by commercial banks, bank failures are still being witnessed in Kenya. The objective of this study was to determine the effect of digital financial services on profitability of Kenya Commercial Bank. The study was guided by the following specific objectives: To determine the extent to which internet banking affected profitability of Kenya Commercial Bank; to establish the effect of automate teller machines on profitability of Kenya Commercial Bank; to find out the effect of mobile banking on profitability of Kenya Commercial Bank and to investigate the effect of credit cards on profitability of Kenya Commercial Bank. The study was guided by the following three theories: the theory of financial innovations, technology acceptance model and diffusion innovation theory. The study applied descriptive research design. The study used purposive sampling to select Kenya Commercial Bank from the list of all licensed commercial banks in Kenya. Kenya Commercial Bank was selected as it is the largest commercial bank in Kenya with highest technological advancement. The study used secondary data. The empirical model was based on simple linear regression. The study established that internet banking was an important factor in enhancing profitability of the Kenya Commercial Bank (r= 0.706, p- value = 0.022), the study also established that automated teller machines was important in enhancing profitability of the Kenya Commercial Bank (r = 0.757; p- value = 0.011). The study further noted that mobile banking was important in enhancing profitability of the Kenya Commercial Bank (r = 0.630; p- value = 0.021). On the effect of credit cards on profitability of the Kenya Commercial Bank (r = 0.669; p- value = 0.035). The hypotheses were tested using simple linear regression analysis, where all the four null hypotheses were rejected based on the tvalues which were all greater than critical t-values. It was concluded that profitability of the Kenya Commercial Bank was influenced by internet banking, automated teller machines, mobile banking and credit cards. The study therefore recommended that commercial banks that seek to enhance their profitability should embrace digitized financial services. The findings of the study will be important in informing bank managers on mechanisms of enhancing their profitability