THE EFFECT OF DIGITAL BANKING ON THE PERFORMANCE OF BANKS IN KENYA BY JAIRUS

THE EFFECT OF DIGITAL BANKING ON THE PERFORMANCE OF BANKS IN KENYA
BY
JAIRUS .M. BUKHALA
A RESEARCH PROPOSAL SUBMITTED TO THE COLLEGE OF HUMAN RESOURCE DEVELOPMENT SCHOOL OF BUSINESS IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE DEGREE IN BACHELOR OF SCIENCE IN BUSINESS INFORMATION TECHNOLOGY
DECLARATIONThis is my original work and has never been presented to any institution of higher learning for the award of a diploma or a degree..

Presented by……………………………………………….Date……………………..JAIRUS .M. BUKHALAHD232-5988/2014
This research project has been submitted for examination with my approval as theUniversity Supervisor.Approvedby…………………………………………………….Date………………………MR FRED CHUNESCHOOL OF BUSINESSJOMO KENYATA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
DEDICATIONThis research is a dedication to my parents David Bukhala and Emily Mulondo
ACKNOWLEDGEMENTI acknowledge each and every person that got involved in this research to ensure successful completion and within the required time. It is with uttermost appreciate that I would like to that all personnel involved.

I appreciate the efforts of my supervisor who offered me both professional and moral support to ensure that all the instructions and regulation for a final year project are complied with before handing in my final report.

I recognize and appreciate the financial support by my parents who did not hesitate to dig into their pockets to ensure that I lacked nothing during the period of this research.

Without forgetting my classmates who offered positive criticism which resulted in a report that is error free.

Above all I acknowledge the almighty God for it is because of him that I was able to go through this phase of my study and successfully accomplish it.

ABSTRACTThe purpose of the study was to establish the effect of digital banking on the performance of banks in Kenya. Digital banking has become the main point of focus in banking sector, while banking industry is the heart of every robust economy. The research design used was survey. The population of study was banks in Kenya that have been in existence for a period not less than ten years. The data collection instrument used was questionnaire which was administered by the researcher through drop and pick method.The study found out that digital banking improved the operations, improved the liquidity and theasset quality in banks in Kenya. This not only increased their markets but also helped the organizations to remain competitive in the market. Digital banking also deepen liquidity of banks in existing markets, for example by reducing excessive reliance on a narrow base of depositors for funding and improves on earnings, asset quality and this increased efficiency in the operations as a whole and especially in banks in emerging markets and developing countries such as Kenya.The research indicates that there is need to adopt the various forms of digital banking in order to improve performance in the Kenyan banking industry. In technological innovations, the banks should introduce digital banking products that are relatively simple and standard and that offer clear value added. The rapid proliferation and diffusion of technology in the Banking Industry in Kenya provides a platform to use modern technologies to develop operational efficiency andquality of service to attain and retain customers and in the process enhance the overall performance of the banks.

Table of Contents
TOC o “1-3” h z u DECLARATION PAGEREF _Toc520709422 h iiDEDICATION PAGEREF _Toc520709423 h iiiACKNOWLEDGEMENT PAGEREF _Toc520709424 h ivABSTRACT PAGEREF _Toc520709425 h vCHAPTER ONE PAGEREF _Toc520709426 h 1INTRODUCTION PAGEREF _Toc520709427 h 11.0 Background of study PAGEREF _Toc520709428 h 11.1 Statement of the problem PAGEREF _Toc520709429 h 21.2 Objectives of the study PAGEREF _Toc520709430 h 31.3 Research questions PAGEREF _Toc520709431 h 41.4 Scope of the research PAGEREF _Toc520709432 h 41.5 Justification of the study PAGEREF _Toc520709433 h 41.6 Limitations PAGEREF _Toc520709434 h 5CHAPTER TWO PAGEREF _Toc520709435 h 6LITERATURE REVIEW PAGEREF _Toc520709436 h 62.1 Introduction PAGEREF _Toc520709437 h 62.2 Theoretical review PAGEREF _Toc520709438 h 62.3 Conceptual framework PAGEREF _Toc520709439 h 122.4 Review of variables PAGEREF _Toc520709440 h 132.5 Empirical review PAGEREF _Toc520709441 h 162.6 Summary of literature PAGEREF _Toc520709442 h 172.7 Literature gap PAGEREF _Toc520709443 h 18CHAPTER THREE PAGEREF _Toc520709444 h 19RESEARCH METHODOLOGY PAGEREF _Toc520709445 h 193.1 Introduction PAGEREF _Toc520709446 h 193.2 Research design PAGEREF _Toc520709447 h 193.3 Population of the study and sampling size PAGEREF _Toc520709448 h 203.4 Operationalization of the research topic PAGEREF _Toc520709449 h 203.5 Sampling technique PAGEREF _Toc520709450 h 203.6 Data gathering method PAGEREF _Toc520709451 h 203.7 Actual field work PAGEREF _Toc520709452 h 213.8 Methods of data presentation, analysis and interpretation PAGEREF _Toc520709453 h 21CHAPTER FOUR PAGEREF _Toc520709454 h 23Introduction PAGEREF _Toc520709455 h 234.1 Presentation and analysis of the data collected PAGEREF _Toc520709456 h 234.2 Data presentation preliminary PAGEREF _Toc520709457 h 234.3 Summary and Interpretation of the Findings PAGEREF _Toc520709458 h 28CHAPTER FIVE PAGEREF _Toc520709459 h 31SUMMARY, CONCLUSION AND RECOMMENDATIONS PAGEREF _Toc520709460 h 315.1 Summary PAGEREF _Toc520709461 h 315.2 Conclusions PAGEREF _Toc520709462 h 325.3 Policy Recommendations PAGEREF _Toc520709463 h 335.4 Limitations of the Study PAGEREF _Toc520709464 h 34REFERENCES PAGEREF _Toc520709465 h 36APPENDIX PAGEREF _Toc520709466 h 40QUESTIONNAIRE PAGEREF _Toc520709467 h 40

LIST OF TABLES
TOC h z c “Table 4.1” Table 4.1 1 Rate of response by respondents PAGEREF _Toc520707745 h 23Table 4.1 2 Sex of respondents PAGEREF _Toc520707746 h 24Table 4.1 3 Age group of respondents PAGEREF _Toc520707747 h 24Table 4.1 4 Marital status of respondents PAGEREF _Toc520707748 h 25Table 4.1 5 Academic qualification of respondents PAGEREF _Toc520707749 h 25Table 4.1 6 General impact of digital banking in banking PAGEREF _Toc520707750 h 26Table 4.1 7 Impact of digital banking on employment PAGEREF _Toc520707751 h 26Table 4.1 8 Knowledge of the various forms of digital banking PAGEREF _Toc520707752 h 27Table 4.1 9 Operations effectiveness and efficiency PAGEREF _Toc520707753 h 27
CHAPTER ONEINTRODUCTION1.0 Background of studyThe banking sector all over the world has witnessed tremendous changes in terms of the operations and performance as a result of advancement in technology. Most operations have shifted from the traditional banking halls to online banking through the use of electronic devices what is commonly referred to as digital banking. Digital banking is a broader concept which is most often misunderstood or narrowly defined to mean online and mobile banking.

Don (2016) defines digital banking as the digitization (or moving online) of all the traditional banking activities and programs that historically were only available to customers when physically inside of a bank branch. These activities include money deposits, withdrawals and Transfers, checking/saving account management, applying for financial products, loan Management, bill pay and account Services. The shift to digital banking came as a result of change in customer behavior and a changing customer base which mainly constitute the millennial who are now becoming the biggest consumers of products being offered by the individual banks. Digital Banking is the application of technology to ensure seamless end-to-end (STP in the ‘old’ jargon) processing of banking transactions/operations; initiated by the client, ensuring maximum utility; to the client in terms of availability, usefulness and cost; to the bank in terms of reduced operating costs, zero errors and enhanced services
The race to deliver the best digital client experience is particularly intense in Asia and Africa, where a new generation of young, affluent clients are coming to the fore. The number of middle class households in key Sub-Saharan African countries is set to grow rapidly. These households will be digitally savvy and more likely to embrace new types of financial service providers, including those outside the banking industry. Up to until the introduction of digital banking, households in Africa used to line up in banking halls to pay even the smaller bills like water and electricity. The longer queues and slow or even poor services necessitated the need to improve customer satisfaction through offering real time services by customers not having to go the banking halls but instead do transactions at the comfort of their homes and offices.

Vodacom and MTN being the leading digital bank services offering companies both seek to increase their customer base to ensure a wider percentage of the population is connected. MTN Group Ltd. for instance, is seeking to challenge rival Vodacom Group Ltd. as Africa’s biggest digital bank by tripling its customer numbers within three years. (Janice Kew; Loni Prinsloo, 2017)
Five years ago, banking clients in Nairobi had to spend an hour queuing to pay their utility bills. Fast forward to the present day, these clients are now able to pay their bills at the touch of a button from the comfort of their home. Digital revolution has seen some banks in Kenya adopt mobile and internet banking technology. Equity bank, was the first bank to introduce simcards (Equitel) which is provided to its customers for them to be able to access services that were initially offered only at the banking halls through their mobile phones at the comfort of their homes. Other banks like CFC Stanbic and Barclays bank have introduced automatic banking machines that carry out banking transactions without the presence of tellers to help reduce the queues in banking halls and as a result save time. The automatic banking machines are also meant to reduce the number of staff thereby reducing expenses incurred in paying salary.

According to an article published on February 2016 on the business daily, the Central Bank of Kenya has been an integral part of the financial revolution, given the aspirations laid out in the development blueprint, Vision 2030.

This research focusses on the impact digital banking has on the banking sector in terms of employment, customer service delivery among other things. It also aims at explaining the various forms of digital banking available in Kenya and the developments that have been witnessed since the rise of digital baking.

1.1 Statement of the problemTechnology has had a very big effect on almost every area of our lives. From the way we work to how we associate with others or how we entertain ourselves, technology has altered almost everything. The banking sector hasn’t been left out either; the impact has been profound and has affected every part of banking from the way banks operate through to how clients access different banking services. Gone are the days of standing in endless lines to deposit or cash a check. Information is also now transferred and stored in a much more convenient and efficient way. (James McArthur, 2016). From the introduction of ATMs and ATM cards in the 1960 to online banking becoming a norm in 1990, technology has been a major factor in the change and development the banking industry.
Globally banks have experienced gradual changes in terms of ease of operations and ease of doing business. This has been majorly influenced by the continuous changes in technology and the inventions of devices that ease operations. The changing customer demand and preferences has led to the migration into the digital world. Most operations now have to be automated to ensure efficiency and effectiveness.

As far as the financial sector is concerned – and banks in particular – the new economy implies not only a transformation in banking employment and services but also new challenges for regulators and supervisors if financial stability is to be preserved. Additionally, central banks will see a significant decline in the demand for their liabilities, and a resulting loss of their primary interest rate policy instrument. The current interest rate environment is a rare one but impossibly an eternal one. Technology has brought about its own share of challenges ranging from its use and adaptability to reduction in employment opportunities.

The success of technology in any field or any aspect of life is dependent upon the responses from the people using it. It is important to evaluate both the negative and positive impacts of technology and weigh both before deciding to implement or adopt. Employment as one of the factors in determining the economy of a country is the most affected by technology therefore it is necessary to customize technology to enable creation of job opportunities. This necessitates a need to investigate how technology can be incorporated in the banking sector to ensure creation of employment opportunities despite operations being enhanced.

1.2 Objectives of the studyThe general purpose of this study is to examine the role of technology in the banking sector in Kenya. The study specifically aims to determine the significant role of technology in commercial banking in Kenya. It will examine how technology has enhanced the growth and improvement of operations of banks in Kenya and determine the effects of technology in the processes involved in the sector. It will evaluate the extent to which job satisfaction in banks has been influenced and affected ever since the introduction of modern technology on bank and financial institutions. In this regard, the main objective of this study will include;
To determine the extent to which technology has contributed to customer satisfaction and banks’ performance
To determine how skillful and knowledgeable the staff are in the use of technology in banks
To determine whether there is an increase in the level of efficiency and effectiveness of operations since the introduction of information and electronic technologies in the banking system in Kenya.

To identify the various forms of digital banking and establish how they work or operate
1.3 Research questionsWhat is digital banking?
What are the various forms of digital banking in Kenya?
How has digital banking affected the banking sector in Kenya?
How have banks in Kenya implemented digital banking in their day to day operations?
How can technology or digital banking be customize to enhance creation of employment opportunities?
1.4 Scope of the researchThis study focusses on the impact technology (digital banking) has on the Kenyan banking sector precisely on employment. It will majorly focus on the employment patterns and the employment rate of banks in Kenya over the years in comparison to the technological advancements that have been witnessed over the years.

The study aims to explain the various forms of digital banking (mobile banking, internet banking and digital branches) and the trends that have been witnessed in each of the forms. Customer behaviors with each of the forms of digital banking is also a point of focus in the study; theories about customer behaviors will be stated and explained in the study.

1.5 Justification of the studyTechnology being an integral part of today’s life has changed the banking sector. The ever changing technological innovations and advancements has put the banking sector on toes in a bid to cope with the trend for the purposes of improving customer experience and attracting a wider customer base. Despite the positive effects technology has showed over the years, it also has its fair share of challenges. Banks have had to lay off some of its staff as result of their jobs being taken up by technology. Not everyone in the banking sector is conversant with the new technology being introduced thereby making them shy away from banking with the banks that have adopted technology in their operations. It is therefore necessary to identify the areas of weaknesses portrayed by technology and improve on them to ensure quality and improved customer experience.

Technology should create employment opportunities and in turn improve the economy of a country. It is therefore viable to identify means of customizing technology to ensure employment creation specifically in the banking industry. It is also important that banks raise awareness to their customers on the importance of adopting technology in their banking experience to ensure that they are well aware of it and also know how to go about it.

It is also of importance to determine the negative impacts of digital banking so as to minimize losses incurred during its implementation.
1.6 LimitationsThis research work will be based on the importance and role of technology in the banking sector in Kenya using a number of banks that have been in existence for quite a while as case study. The respondents will comprise of bank staff and customers numbering 1-20. It will examine the extent to which banks have embraced technology (office automation, computers) as well as determine the role technology has had on the customer (i.e. whether they prefer the old way of banking or the modern day digital banking). This study may be limited due to slow response of some banks giving out information and low co-operation on the part of the members of the public who form the customer base.

CHAPTER TWO LITERATURE REVIEW2.1 IntroductionThis chapter entails the theoretical review of the topic of research in this case being digital banking as a whole. In this chapter various theories in relation to digital banking are explained in detail.

Aside from the theories, the conceptual framework, review of the variables and empirical review also make part of the chapter.
To conclude the chapter, is the summary of the literature and the literature gap that exists in the theories identified in the theoretical review.

2.2 Theoretical review2.2.1 Innovation diffusion theory
Innovation Diffusion Theory (IDT), formulated by Everett M. Rogers in 1962, is the pioneering theory that laid down the primary foundation for the future of innovation diffusion research (Rogers, 1962). It was grounded in theories of economics, sociology and communication and a synthesis of adoption-diffusion literature across disciplines, IDT identified five characteristics of an innovation that influences its adoption: relative advantage, compatibility, complexity, trialability, and observability.
Relative advantage (RA) refers to an individual’s belief that Internet Banking is better than traditional ways of banking and can be related to diverse economic, social, convenience and satisfaction dimensions of IB (e.g. convenience in the form of freedom from time and place constraints, efficient management of finance, a better overview of banking matters, and the speed of conducting banking activities). Research has identified RA as a major determinant of a customer’s intention to use IB (Tan and Teo, 2000).

Compatibility (CO) is an individual’s perception that IB is consistent and congruent with his or her existing understanding, values, needs and past experiences. It can also be defined as the fit between IB and the social and technological infrastructure of an individual. IB adoption involves acquiring a set of complementary technologies: familiarity with computers, Internet proficiency, and engagement with computer-mediated communications and transactions. The influence of one technology on the next generation of that innovation is expected to be positive especially when the relationship between the two technologies is compatible (Lee et al ., 2005). In other words, willingness to adopt a new technology is affected by a prior adoption pattern of related technologies and a greater level of compatibility. This will allow the new technology to be interpreted in a more familiar context. Customers’perception of compatibility with other electronic banking services (e.g., home banking, ATMs e-payment, and phone banking) and with the IB service medium (Internet) has been found to be positively related to their attitude towards IB and its usage (Puschel et al., 2010).

Complexity (CP) refers to the degree to which IB is perceived to be relatively difficult to comprehend and use. Although CP and CO are closely related, the distinction can be made that CP has more to do with the actual competence and skill involved in using IB, whereas CO manifests general perceptions towards IB use. Previous research suggests CP has a negative effect on the use of IB (Black et al., 2001). However, in contrast with these findings, Tan and Teo (2000) did not find any support for the negative influence of CP on intention to adopt IB. Furthermore, some studies using IDT framework, have replaced CP with the PEOU construct from the technology acceptance model (Koenig-Lewis et al., 2010; Puschel et al ., 2010).

Trialability (TR) refers to the degree to which an individual perceives the bank to offer chances for him/her to try IB prior to any decision to adopt. A limited number of studies has shown that TR is an important factor for IB adoption as individuals will feel more comfortable with the technology and are more likely to adopt it if they are offered experimental low-cost or low-risk trial of IB (Black et al.,2001).On the other hand, Puschelet al ., (2010) did not find a relationship between TR and IB adoption.

Observability (OB) is defined as the degree to which an individual can see the availability of IB to others and can observe others using the service. Rogers (1962) suggests that the more visible an innovation and its benefits are, the greater the likelihood of adoption, simply because the gains from adoption will be more easily recognized. However, most of the studies using IDT framework have either found OB to be of marginal importance in predicting IB behavior (Lee et al ., 2004) or they have excluded OB noting that IB is mostly used in private settings and thus observing individuals performing IB is not only difficult, but also unacceptable (Keonig-Lewis et al ., 2010; Tan and Teo, 2000). IDT has been applied to study IB behavior either explicitly or implicitly, through its influence and integration into other theories. However, very few studies on IB diffusion explicitly measures the five characteristics as defined by Rogers and most suggest that only RA, CO, and CP are consistently related to IB adoption (Black et al ., 2001; Koenig-Lewis et al ., 2010). Black et al ., (2001) pointed out that although IDT is a useful starting point to study IB diffusion, social issues and individual differences need to be incorporated into this framework to gain a better understanding of the phenomenon. Furthermore, Rogers did not identify the perceived risk of an innovation, but subsequently it has been found to be an important factor in explaining IB diffusion within IDT framework (Black et al ., 2001).

2.2.2 Traditional theory of planned behavior
Icek Ajzen in 1985 proposed Theory of Planned Behaviour (TPB), that expanded the boundary conditions of TRA to deal with behaviors over which individuals have incomplete volitional control by introducing Perceived Behavioral Control (PBC) as an additional determinant of intentions and behaviour (Ajzen,1985). PBC, a construct similar in nature to CO from IDT, is defined as the resources and opportunities available to an individual that offer the necessary conditions for adopting certain behavior. In the IB context, where a cost is involved, for instance computer and Internet connection charge, once an individual perceives that technological and other resources are available to him and that he is able to use IB, it is morelikely that he will adopt or continue to use IB. Tan and Teo (2000) identified self-efficacy and facilitating conditions as sub-components of PBC in the context of IB behavior. They suggested that the
users’ self -confidence in their ability to perform IB transactions, access to technological and infrastructure resources, and governmental support positively influences IB behavior. Later research also supports the role of government support in promoting positive IB behavior (Chong et al ., 2010). TPB has been successfully applied to predict IB behavior and has been found better than TRA (Yousafzai et al ., 2010)
From the system that the theory of reasoned action was used in social sciences the researchers found that this theory has some limitations. This theory works perfectly when behaviors are managed by the individuals. When a behavior is not under control, though someone might very much want to do it, the behavior in the final analysis would not be actual. One of the main limitations is that people have little power or control over their impulses or they feel so. To account for these limitations, Ajzen brought another element which was the perceived behavior control and by adding this conclusion was the same planned behavior theory in which individual behavior is predicted to be under impulsive control (Mathieson, 2001). The theory of planned behavior is a background of reasoned action theory which has proved that in predicting the human behavior information has been used successfully in different technologies (Ajzen, 2002). Based on the planned behavior theory, the real behavior of individuals in particular actions is directly impacted by the behavioral intentions which are in turn directed by the attitudes, mental norms, and the control of the perceived behavior. Generally, the attitude towards the behavior, mental norms, and the control of behavior lead to the formation of the intentions in showing a behavior. As a general rule, the mental outlook and the norm empower one’s intention of doing something in practical terms. Thus, when people have adequate control over their behavior, it is expected that at some point they put their intentions into practice. So it seems that the intention of doing a behavior is shown before the behavior is displayed (Ajzen, 2002).

2.2.3 Technology acceptance model
Technology Acceptance Model (TAM), proposed by Fred Davis in 1989 and based on TRA, was one of the first research models to study how an individual’s perceptions about the usefulness, ease of use, and attitude towards the use of a specific technology affects its eventual use (Davis, 1989). Perceived Usefulness (PU) refers to an individual’s perception that using IB would enhance his or her performance, whereas Perceived Ease of Use (PEOU) is the perception that using IB would be free of effort (Davis,1989). PU and PEOU mediate the effects of external variables, such as training and technology characteristics, on behavioral intention and use. PU is influenced by PEOU because, other things being equal, the easier it is to use a technology, the more useful it can be. TAM also suggests that the direct effect of PEOU on behavioral intention is significant only in the early stages of use (see Venkatesh et al.,2003). Over the long term, as user experience increases, this effect becomes indirect and operates through PU (Venkatesh and Davis, 2000). However, due to the lack of evidence on the impact of PEOU on intentions and behavior, Alsajan and Dennis (2010) combined PEOU and PBC (measured by self-efficacy and controllability) as a single aggregate factor and named it perceived manageability, which measured customer’s perception of the internal and external barriers to use IB systems.

TAM has been the most widely applied model to study IB behavior. Previous research employing TAM in the IB context has focused on model replication (e.g., McKechnie
et al., 2006), theoretical underpinning of TAM constructs i.e. PU and PEOU (e.g., Celik, 2008; Eriksson and Nilsson, 2007), Model extension by adding additional constructs as direct determinants of attitude, intentions or use (e.g. Chong et al., 2010), and model modification by combining TAM with other models (e.g., Chan and Lu, 2004). Ina comparison of TAM, TPB and TRA to predict actual IB behavior, Yousafzai et al ., (2010) showed that TAM was empirically superior to the other two models. However, the key advantages of TAM, i.e. parsimony and utilitarian and technological focus, can lead to overlooking the influence of a customer’s social and psychological perceptions regarding the adoption of a technology. Another prominent criticism of TAM is the lack of acknowledgement of individual differences (Agarwal and Prasad, 1999). The original TAM does not take into account prior experience, age, gender, and many other personal characteristics that may influence attitudes towards technology, which in turn influence intention to use. In order to overcome these limitations, various studies incorporated variables as antecedents, covariates, or outcomes of TAM, for example, based on TPB’s construct PBC, Mathieson et al ., (2001) added perceived resources’ to TAM. Perceived resources are the extent to which an individual believes that he or she has the personal and organizational resources needed to use a technology, such as skills, hardware, software, money, documentation, data, human assistance and time. In the context of mobile banking adoption, Luarnand Lin (2005) found that the incorporation of perceived cost along with self efficacy and perceivedcredibility significantly improved the predictive power of TAM. However, research evidence on this variable is mixed as Koenig-Lewis (2010) found that perceived cost had no influence on the behavioral intention to adopt mobile banking.Venkatesh and Davis (2000) proposed an extension of TAM (TAM2) by identifying and theorizing social influence (SN and Image) and cognitive instrumental processes (job relevance, output quality, result demonstrability, and PEOU) as the determinants of PU. They also added experience and voluntariness as moderators to the new model. In a similar vein, Venkatesh (2000) suggested
computer self-efficacy, computer anxiety, computer playfulness, and facilitating conditions as the determinants of PEOU. Recently, Venkatesh and Bala (2008) introduced an integrated model of TAM (TAM3) by combining TAM2 and the determinants of PEOU proposed by Venkatesh (2000). TAM3 presents the most comprehensive version of TAM and to date no study has tested the model in the IB context.

2.3 Conceptual frameworkIndependent variables Dependent variable
-24828577470Automatic banking machines
0Automatic banking machines

166687465404
-238125339725Internet banking
0Internet banking
3390900300355Banking sector in Kenya
0Banking sector in Kenya

1685924335915
1724025171450
-20002594615Mobile banking
0Mobile banking

2.4 Review of variables2.4.1. Automatic banking machines
Banking and financial sector has undergone radical changes and improvements in the last few years and is in a constant state of development. Digitalization has brought the banking industry new business models, development concepts and areas of improvements, from internet banking to monetary transactions. These new implementations to the financial sector require the employees to be aware of the rapidly changing work environment and the overall state of change in the financial sector. At the moment, digitalization and change management are one of the major turbulences that are changing the banking business forever and with bad management, the results can be long lasting
The automated teller machine (ATM) is an automatic banking machine (ABM) which allows customer to complete basic transactions without any help of bank representatives. There are two types of automated teller machine (ATMs). The basic one allows the customer to only draw cash and receive a report of the account balance. Another one is a more complex machine which accepts the deposit, provides credit card payment facilities and reports account information. It is an electronic device which is used by only bank customers to process account transactions. The users access their account through special type of plastic card that is encoded with user information on a magnetic strip. The strip contains an identification code that is transmitted to the bank’s central computer by modem. The users insert the card into ATMs to access the account and process their account transactions. The automated teller machine was invented by john shepherd-Barron in year of 1960.

An automatic banking machine represents a virtual process that includes online banking and beyond. As an end-to-end platform, it must encompass the front end that consumers see, the back end that bankers see through their servers and admin control panels and the middleware that connects these nodes. Ultimately, it should facilitate all functional levels of banking on all service delivery platforms. In other words, it should have all the same functions as a head office, branch office, online service, bank cards, and point of sale machines.

June 27, 1967 was the year that the first cash-dispensing machine went live at Barclays Bank in London’s Enfield borough.

From this inaugural installation, an entire industry has grown, with the result that, today, you’ll find ATMs everywhere — in fact, 3 million of them in installations all over the world, from the most populous cities to the loneliest outposts..

As they’ve increased in number, ATMs have also stepped up impressively in sophistication. Today’s ATMs are a far, far cry from that first installed De La Rue machine. They still dispense bank notes around-the-clock, but many of them perform transactions no one imagined automating 50 years ago. (Suzanne Cluckey, 2017)
Many consumers of financial products offered by banks however prefer branch interaction. They prefer a combination of both digital branches and the normal or traditional banking halls.
Closing a bank’s branch can result to poor outcomes; loss of high street presence can shrink a bank’s presence in the public; competitors are in a stronger position to seize the market share; brand equity can be compromised; and customers could lose confidence and seek out another bank. (Accenture, 2016)
2.4.2. Internet banking
Shiffu (2014) defines internet banking as the provision of information or services by a bank to its customers over the internet and is viewed as a supplemental channel used in conjunction with other channels to provide the convenience of banking anytime from one’s home or work, without having to incur some costs associated with a branch visit like going to the branch or waiting on lines.

Grui (2014) in his thesis suggests the rise in the number of internet users as the major contributing factor for the increase in the population now using internet banking. Banks can easily collect information about their market in this case being its customer base and segment the market in such a way that they meet the expectations and requirements of the customers. With this information banks can also develop or otherwise design new products depending on the market demand.

An electronic (internet) banking transaction — also called an electronic funds transfer (EFT) — is any transaction that is processed over the Internet. Either the consumer or the bank can initiate an electronic transfer. One common type of electronic transaction is an automated clearing house (ACH) payment or deposit, which allows a merchant to deposit or withdraw money directly to or from a checking account. Bill pay transactions, which allow you to send a payment to another person or company from your bank account, also are classified as electronic transfers. The consumer also can transfer funds between bank accounts electronically.

Electronic banking transactions typically involve three parties — the bank, the consumer and a merchant. In some cases, only the bank and the consumer must participate to complete the transaction. The consumer initiates the transaction by submitting the request online. The bank receives the request and either approves or rejects the electronic transfer of funds based on the accuracy of the data provided in the request (card number, address, routing number or account number) and the available funds in the case of withdrawals. After processing is completed, the funds electronically transfer to or from the consumer’s account to reach the intended recipient
Internet banking has brought a lot of opportunities as well as challenges. There has been a rise in competition of financial institutions each trying to increase its sales and the profit margins. In a bid to try to reduce the cost of operations and time spent in transacting in the banking halls, banks have eased their operations by adopting internet banking which most customers find very effective. (Chau ; Lai, 2003)
2.4.3. Mobile banking
Mobile banking, or m-banking, is a mobile phone service which enables mobile phone users to access basic financial services even when they are miles away from their nearest branch or home computer. In some parts of the world, such as the Philippines, Brazil and Africa, mobile banking is already flourishing. But in the United States, only about 10 percent of consumers — about 1.7 million people — currently use their cell phones to conduct bank transactions. That number is expected to grow to 35 million by 2010 (CNBC, 2009).Mobile banking is different depending on the providers. The various ways of access to mobile banking services include mobile websites, text and mobile applications.

Mobile web is a mobile banking option similar to online account access from a home-based computer that allows for checking balances, bill payment and account transfers simply by logging into the user’s account via a mobile web browser. This service provides easy and fast access to accounts as long as the log-on information is secure. Mobile banking applications give fast access to account information and allow you to use mobile device’s built-in function to provide a better banking experience.

Text banking enables one to request and receive account information through text message. Providers or financial information send information relating to their customers’ accounts to the specific account holders and also inform them of different and new products they are offering.

Mobile banking applications for Android, iPhone and Blackberry, connect the user directly to the bank server for complete banking functionality without having to navigate a mobile web browser. These applications can be downloaded either through the bank’s website or through the iTunes store or google play-store.

Some banks are taking the technology one step further with account rewards confirmation, person-to-person payments (P2P) and, more importantly, remote deposit capture (RDC) capability.

Simply put, RDC is a service allowing users to scan checks and transmit the scanned images to a bank for posting and clearing. In the case of mobile banking, a customer takes pictures of both sides of a check and forwards the photos to the bank, which then deposits the funds in the same way as if the deposit was made through a teller. RDC capability means customers have faster access to their money, while automating yet another deposit feature.

2.5 Empirical reviewThe introduction and adoption of digital branches is the most recent development in the banking sector. Despite reducing physical interactions, they have helped reduce the longer queues that have been the norm in traditional banking halls. They offer fast services which only require the users of the systems to be computer literate. However, the digital branches also have negative impacts that come with it. For instance, one has to know how the machine operates in order to use it effectively. They have also led to closure of some branches leading to job losses.

Mobile banking is easily accessible since it only requires one to have a mobile phone device. It is fast and convenient to use. They however pose a threat to security of important account information since mobile money applications require use of internet which is prone to security breaches making the information vulnerable. The threats that face computer systems are the same attacks that may face mobile banking applications. It is also difficult to authenticate the mobile applications of the various banks before downloading and using them.

Internet banking is more or less the same as mobile banking only that it does not necessarily require one to download the application so as to access the services of a bank. With internet banking one only accesses the official website of their banks and has access to services that would otherwise have been offered while inside of a banking hall. In terms of cost of operation it is preferred as compared to mobile banking as it requires less data resources to conduct transactions. It is however the most vulnerable since the information provided on the internet may land to the wrong people who might end up using it for malicious reasons and in turn end up gaining access to your personal accounts.

2.6 Summary of literatureIDT identified five characteristics of an innovation that influences its adoption: relative advantage, compatibility, complexity, trialability, and observability. Relative advantage implies that an individual’s belief that Internet Banking is better than traditional ways of banking and can be related to diverse economic, social, convenience and satisfaction dimensions of IB. Compatibility (CO) is an individual’s perception that IB is consistent and congruent with his or her existing understanding, values, needs and past experiences. Trialability (TR) refers to the degree to which an individual perceives the bank to offer chances for him/her to try IB prior to any decision to adopt. Observability (OB) is defined as the degree to which an individual can see the availability of IB to others and can observe others using the service.

Theory of Planned Behaviour (TPB) expanded the boundary conditions of TRA to deal with behaviors over which individuals have incomplete volitional control by introducing Perceived Behavioral Control (PBC) as an additional determinant of intentions and behaviour. PBC, a construct similar in nature to CO from IDT, is defined as the resources and opportunities available to an individual that offer the necessary conditions for adopting certain behavior. In the IB context, where a cost is involved, for instance computer and Internet connection charge, once an individual perceives that technological and other resources are available to him and that he is able to use IB, it is more likely that he will adopt or continue to use IB.
Technology Acceptance Model (TAM) was one of the first research models to study how an individual’s perceptions about the usefulness, ease of use, and attitude towards the use of a specific technology affects its eventual use. PU and PEOU mediate the effects of external variables, such as training and technology characteristics, on behavioral intention and use. PU is influenced by PEOU because, other things being equal, the easier it is to use a technology, the more useful it can be. TAM also suggests that the direct effect of PEOU on behavioral intention is significant only in the early stages of use. Over the long term, as user experience increases, this effect becomes indirect and operates through PU
2.7 Literature gapThe studies on the impact of digital banking in the banking sector that have been done and the theories in regard to the same mainly focus on the behavioral aspect in the adoption of technology in the banking sector. They narrow it down to the effects and patterns displayed by human beings in the adoption of the same. Technology has a wide range of effects precisely on the banking sector. There exists studies that explain the role and effects technology has on the banking sector but this study narrows down to the Kenyan banking sector and further breaking it down on how it has affected employment in the sector. Technology being an ever changing component it is essential that different banks put in place mechanisms of adoption or copying with the trends to ensure seamless transition. It is also important to identify the employment patterns of various banks and understand whether technology has contributed positively in tackling the unemployment menace that the country faces.

CHAPTER THREE RESEARCH METHODOLOGY3.1 IntroductionResearch method is a systematic process of collecting, presenting, analyzing and interpreting data for the purpose of arriving at dependable solutions to human problems. Methodology is therefore concerned with the study of the research method in a research of this nature. It is necessary to define the research design, area of study , population of study, sample size and sample size determination instrument for data collection, validation of instrument and reliability of research instrument.

This chapter discusses the methods that have been used in the collection and analysis of data to respond to the research questions of the study. It explains the research design, sampling techniques and data collection methods used; and describes how data collected from the research has been analyzed.

3.2 Research designAccording to (Asika, 1991), research design is defined as the structuring of investigation aimed at identifying variables and their relationships to one another. A research design is very useful as it helps the researcher to develop a mental image of the structure for gathering and the analysis that will follow. The research study set out to assess the impact of digital banking in the Kenyan banking sector and to provide vital information in order to extract the sincere perception of the bank customers and staff in Kenya with regard to the position and role of technology in banking in Kenya.

The purpose of this research is a random sampling technique of banks that have been selected, the population and sample size of this project is based on four banks in Kenya, which are KCB, Barclays, CFC Stanbic and Cooperative bank, which will be adopted for the questionnaire both to the employer (bankers) and customers of the selected banks. This research work will examine the impact of digital banking on the Kenyan banking sector. The method employed to examine the impact of digital banking in the banking sector in Kenya shall be the survey method. Data collected from the questionnaire shall be the presented with aid of manual and electronic applications.

3.3 Population of the study and sampling sizePopulation refers to the total number of cases in the focus of interest. The population of this research work will focus mainly on the four banks mentioned above. The sample size used for this research work will consist of four banks which are; KCB, Barclays, CFC Stanbic and Cooperative bank. These banks were selected based on their oriented technology driven state, profitability, large capital base and reliable network of branches countrywide. A total of fifty questionnaires (50) to both customers and staff of these banks.

3.4 Operationalization of the research topicOperationalization of the research topic is to identify the research variables involved in this project that is the independent and dependent variables. Therefore, these variables are classified into two namely; the independent and dependent variable. Y is the dependent variable which has to do with the (effect), while X is the independent which has to do with (cause). In other words, X is the cause variable while Y is the effect variable. Therefore, to relate operationalization to the research topic, the Kenyan banking sector is the cause while impact of digital banking is the effect of operationalization in this research.

3.5 Sampling techniqueData for this project will be collected using a non-probability sampling method. Here the sampling selection is based on the subjective choice of the researcher as to which elements best provide desired basis and probability of good outcome.

3.6 Data gathering method
3.6.1 Sources of data
The sources of data for a research work are grouped into two, namely; primary and secondary sources.

But for this project, the primary data shall be the basis of this research work. The data shall be generated by means of a structured questionnaire instrument.
The questionnaire shall be divided into two sections; the first section shall collect the personal data of the respondents while the second section shall focus on the subject matter of the study. The questionnaire to be used shall be self-administered and a total of fifty (50) respondents comprising of bank staff and the customers for the purpose of this study. The sampling shall be done randomly such that the respondents shall cut across various departments and levels.

3.6.2 Instruments of data collection
The research instruments being the questionnaires will be administered by the researcher and a face to face approach will be adopted in the process of administering the questionnaires. This instrument was drafted by the researcher, reviewed by the supervisor and acknowledged before implementation exercise to ensure that it was appropriately structured for the study.

3.6.3 Description of questionnaire
The data collection instrument to be used shall be a well-structured questionnaire and it would be administered to the respondents. The questionnaire shall contain twenty (20) items divided into two sections.
The first section shall focus on questions on personal information of respondents while the second section shall be devoted to the questions that relate to the subject matter based on the research questions that were stated earlier.
The questionnaire will be as simple as possible so that respondents will supply appropriate answer to each question.

3.7 Actual field workThe questionnaires were administered by the researcher in person. A face to face approach was adopted by the researcher in disseminating the questionnaires. This approach was adopted in order to monitor the data collection and ensure that data supplied and response are of high quality.

3.8 Methods of data presentation, analysis and interpretationData presentation gives a good description into the entire research work. The method of presentation addresses how the data collected are disclosed to the public and presented to aid analysis.

The researcher presented the data obtained via the questionnaire with the use of descriptive statistics comprising of tables and pie chart presentation for adequate understanding of the data. The data collected were sorted into different categories of rows and columns, displaying facts and figures

CHAPTER FOURDATA ANALYSIS, INTERPRETATION AND DISCUSSIONS
IntroductionThis research work is primarily interested in ascertaining the role of technology in banking in Kenya. This chapter covers the presentation, analysis and interpretation of data collected from primary sources. The data here are the replies collected from the questions laid out in the questionnaires distributed to the respondents. In order to present the analyzed data, the data collected through questionnaires; all the questions in the questionnaire were analyzed including the ones with close relationship with the research questions and objectives; the results were later interpreted.

4.1 Presentation and analysis of the data collectedOut of the fifty (50) questionnaires distributed forty four (44) were returned from the respondents. This gives a response of 88%. This was a good result as a result of follow up and the non-retrievable questionnaires were as a result of negligence of bank staff and customers to fill their received questionnaire.

4.2 Data presentation preliminaryTable 4.1 1 Rate of response by respondentsQuestionnaire Respondents Percentage (%)
Returned 44 88
Not returned 6 12
Total 50 100
Source: Field survey (2018)
Table 4.1.1 A total number of fifty (50) questionnaires were distributed and forty four (44) of this questionnaires were returned showing average return rate of 88% of the questionnaires. The amount retrieved from the respondents thus is a reasonable level upon which research can be based and valid conclusions drawn from the research.

Section A- Personal Bio data
Table 4.1 2 Sex of respondentsGender
Frequency Percentage (%)
Male 24 55
Female 20 45
Total 44 100
Source: Field survey (2018)
Table 4.1.2 Shows that twenty four (24) out of the 44 respondents were male representing 55% of the entire sample size, while twenty (20) were females representing 45% of the sample size.

Table 4.1 3 Age group of respondentsAge group
Frequency Percentage
25-35 10 22.7
36-45 13 29.5
46-55 21 47.8
Total 44 100
Source: Field survey (2018)
Table 4.1.3, it can be deduced that out of 44 respondents 10 were between the age range of 25-35 representing 22.7% of the entire population, 13 were between 36-45 representing 29.5% and 21 were between 46-55 representing 47.8%.

Table 4.1 4 Marital status of respondentsMarital status
Frequency Percentage
Single 11 25
Married 25 57
Divorced 8 18
Total 44 100
Source: Field survey (2018)
Table 4.1.4, it can be deduced that 11 out of the 44 respondents are single representing 25% of the sample size, 25 are married representing 57% and 8 are divorced representing 18%.

Table 4.1 5 Academic qualification of respondentsEducation
Frequency Percentage
Post graduate 15 34
Undergraduate 25 57
Diploma 4 9
Total 44 100
Source: Field survey (2018)
Table 4.1.5, it can be deduced that 15 out of the 44 of the entire population of the respondents have reached the post graduate level representing 34%, 25 have reached the undergraduate level representing 57% and 4 have reached the diploma level representing 9%.

Section B: Research questions
Table 4.1 6 General impact of digital banking in bankingHow has digital banking impacted the Kenyan banking sector?
Frequency Percentage (%)
Positively 30 68
Negatively 14 32
Total 44 100
Source: Field study (2018)
Table 4.1.6, 30 out of the 44 respondents representing 68% of the population sample had positive comments in regard to the adoption of the various forms of digital banking. However, 14 respondents representing 32% of the population sample preferred traditional banking and criticized the adoption of adoption banking.

Table 4.1 7 Impact of digital banking on employmentHas digital banking contributed to employment creation?
Frequency Percentage
Yes 17 39
No 27 61
Total 44 100
Source: Field survey (2018)
Table 4.1.7, it can be deuced that majority of the respondents (27 out of 44 representing 61% of the sample population) feel that digital banking has not contributed to the creation of employment opportunities. However 17 respondents representing 39% had a contrary opinion suggesting that the adoption of digital banking in the Kenyan banking sector has immensely contributed to the creation of job opportunities.

Table 4.1 8 Knowledge of the various forms of digital bankingHave the staff and customers been trained on the use of the digital forms before adoption?
Frequency Percentage
Yes 10 23
No 34 77
Total 44 100
Source: Field survey (2018)
Table 4.1.8, 10 out of the 44 respondents representing 23% of the entire sample population are of the opinion that the players in the sector have been adequately trained before the banks decide to adopt the various forms of technology in the banking sector. However, majority of the respondents (34 respondents representing 77% of the sample population) feel that more has to be done in terms of training and making the technologies known to the people before it is adopted for the day to day use.

Table 4.1 9 Operations effectiveness and efficiencyHave operations improved since introduction of digital banking?
Frequency Percentage
Yes 40 91
No 4 9
Total 44 100
Source: Field survey (2018)
Table 4.1.9, it can be deduced that 40 out of the 44 respondents representing 91% of the sample population agree that digital banking has enhanced operations in banks thereby terming it as efficient and effective. 4 respondents representing 9% however feel that operations within the banking industry have not been enhanced by digital banking.

4.3 Summary and Interpretation of the FindingsThrough digital banking-performance has improved over the period the research covered. Use of ATM, electronic funds transfer, smart cards etc has increased. Majority of the respondents agreed that adoption of technology in banking was very important in the improvement of operations in banks by reducing the time that would otherwise have been wasted through the traditional banking system. Further the respondents rated the importance of adoption technology by Kenyan banks as high. The study also found out that financial innovation has improved the capital generation of the bank to great extent; this was revealed by majority of the respondents. On whether banks were adopting digital banking, majority of the respondents agreed that their banks were adopting digital banking to improve their operations and so as to remain competitive in the market. Moreover, majority of the respondents indicated that their banks had adopted to a great extent innovations such as automated teller machines, smart cards, electronic funds transfer, electronic data interchange, electronic home banking and electronic office banking in carrying out business activities. This finding of the study supports the findings of the similar studies carried out earlier by the researchers. For instance Simpson, (2002) reveals that electronic banking is motivated largely by the prospects of operating costs minimization and operating revenues maximization. Majority of the respondents indicated that their banks had adopted to a great extent innovations such as automated teller machines, smart cards, electronic funds transfer, electronic data interchange among other components of digital banking. This finding of the study appears to validate the findings of the earlier studies. Egesa (2006) studied Customer Adoption of Tele-banking Technology in the Kenyan banks and found that customers increasingly extend their use of tele-banking as their experience grows with the system and that education played a vital role in the adoption and usage of telebanking technology. Other studies in agreement of these findings are those done by Young. In their research, De Young et al (2007) analyzed the effect of e-banking on the performance of banks by studying US community banks markets and compared the performance of virtual click and mortar banks with brick and mortar banks. Their findings concluded that e-banking improved the profitability of banks hence increasing their revenues. Also, E-banking is largely driven by the factors of minimizing the operating costs and maximizing operating profit, suggests Agboola (2002). According to Dabholka (2002), the ebanking adoption factors are divided into two categories: Factors relating to the infrastructure and accessing technology, factors that are related to retail banking factors. The prior factors include skills on the part of consumers in using internet and other related technologies, attitudes towards technologies, internet penetration rate, privacy and security concerns. Later involves factors like banking culture, e-banking culture, trust in banking institutions and internet banking push. However, lack of PC and internet penetrations serve as barriers for development of e-banking. Also, in their study conducted in Turkish retail banking sector. Hawkins (2001) concluded that e-banking decreases operational costs and it amplifies customers’ satisfaction and retention hence increasing the financial performance of the banks The study set out to find the impact of ICT on profitability of the commercial banks and indeed the finding was positive affirming that relationship. This supports other studies which have been carried out in this area. For instance Kozak (2005) investigates the influence of the evolution in Information Technology on the profit and cost effectiveness of the banking zone during the period of 1992-2003. The study indicates optimistic relationship among the executed Information Technology and together productivity and cost savings. Brynjolfsson and Hitt (2000) indicates that “Information Technology contribute significantly to firm level output.” They determine that Information Technology capital contributes an 81% marginal increase in output, whereas non Information Technology capital contribute s 6%. Likewise they illustrate that Information System professionals are more than twice as productive as non- Information System professionals. The study also sought to find out whether the adoption of technology had improved the liquidity of banks in Kenya. Liquidity for a bank means the ability to meet its financial obligations as they come due. Banks lend finances to invest in relatively illiquid assets, but it funds its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. From the finding, majority of the respondents agreed that adoption of technology had improved the liquidity of their organizations. The study also sought to determine how the adoption of technology contributes to improvement of asset quality in banks in Kenya. From the findings, majority of the respondents revealed that digital banking had positively contributed to improvement of asset quality of the banks. This corroborates a number of similar studies carried out earlier. For instance Haq (2005) states that banks exist because of their ability to achieve economies of scale in minimizing asymmetry of information between savers and borrowers and hence improving the asset quality. The unit costs of Internet banking fall more rapidly than those of traditional banks as output increases as a result of balance sheet growth. In this context, De Young et al (2007) refer to the Internet banking as a “process of innovation that functions mainly as a substitute for physical branches for delivering banking services”. Further, the study sought to find out whether digital banking had improved the earnings in the banks. From the study majority of the respondents agreed that digital banking had improved the earnings in their organization. It was quiet evident that majority of the banks had adopted technology in their operations. Digital banking had let to improved financial performance of the banks. The reported earnings and growth in financial performance over the period can be attributed to digital banking.This finding of the study appears to corroborate some of the earlier studies carried out. For instance, Carlson et al (2000) and Furst et al (2002) conducted an intensive research whether there is a positive relationship that exists between offering electronic banking and banks profitability. Furst et al (2002), reveals that federally chartered US banks had higher Return on Equity (ROE) by using the conventional business model, ICT was one of the major factors that affect banks profitability within the period under study and they also observe that more profitable banks adopt ICT after 1998 but yet they are not the first movers. The finding however conflict with some studies such as Egland et al (1998), who conducted a study and found no evidence of major differences in performance of electronic banking in the US subject to two caveats: This result may not be the case for all the banks and secondly, such results are open to change over time as banks become more severe in the use of innovation.

CHAPTER FIVESUMMARY, CONCLUSION AND RECOMMENDATIONS5.1 SummaryThe aim of the study was to determine the impact of digital banking on the banking sector in Kenya focusing majorly on banks in Kenya. The study was carried out using a questionnaire that was administered to staff and customers of banks.The banking industry which is the back bone of every economy is confronted with various challenges such as globalization, deregulation, competition, significant high cost of installing ICT and maintenance. Adoption of the various forms of digital banking can lead to lower costs, but the effect on profitability remains inconclusive, owing to the possibility of technology effects that arise as a result of consistent high demand of skilled work force, issues of increasing demand to meet customer’s expectation for customer service delivery, trustworthiness of the information system and competition in financial.Going through the administered questionnaires thoroughly, it is evident that digital banking has introduced better infrastructure and technique that satisfies both the employees and customers. The employees no longer have to deal with bulky paper work which is very exhausting and the customers can now make enquiries on their accounts and make withdrawals direct interactions over the counter through the use of the various forms of digital banking like online banking among other forms.

Majority of bank customers enjoy efficient and prompt service delivery by banks because they can perform many transactions remotely hence don’t have to physically visit the bank branches or banking halls. With the use of various forms of digital banking, financial transactions by customers has been enhanced.

The study found out that the adoption of digital banking had improved the capital adequacy of the banks studied and further improved their operations, not only increased their market coverage but also remained competitive in the market. The study also found out that digital banking had improved the liquidity of the banks. Digital banking has also improved the asset quality in banks in Kenya, long term financing that is required for creating long lived assets is also addressed through digital banking. The study also found out that digital banking improved the earnings in banks. Majority of the banks studied revealed that there was growth of sales after adoption of the various forms of digital banking. The reported earnings and growth in financial performance over the period covered can be attributed partly to technology adoption. We can therefore conclude that the adoption of digital banking can improve earnings in banks.In general, the study shows the realization of the benefits in relation to digital banking could be the reason why adoption of various forms of digital banking by banks in Kenya has been very high in recent past. It is quite evident from this study that enhancing technology in the banking industry is a must in a rapidly changing market place, as the technological revolution has set the stage for exceptional increase in financial activity across the globe.

5.2 ConclusionsFrom the study, it can be concluded that there is a positive impact of digital banking on the general performance of banks in Kenya. Competition among banks in Kenya has led to continuous innovation of other forms of digital banking for instance automated bank branches is the latest technology innovation in banks in Kenya. The improved performance was as a result of reduced costs of financial transactions that can be attributed to digital banking. Majority of banks in Kenya have invested their resources in new products and technology innovations such as automated teller machines, smart cards, electronic funds transfer, electronic data interchange, electronic home banking and electronic office banking. These aspects of digital banking have helped the banks in carrying out business activities more effectively and efficiently. The importance of digital banking by banks was rated high. Adoption of forms of digital banking by banks also improved firms’ performance. Digital banking had not improved the capital adequacy of the organization to a great extent but banks are adopting it so as to improve their operations and their market coverage and so as to remain competitive in the market. The study established that adoption of digital banking was very important in the improvement of capital adequacy of banks. Adoption of digital banking improved the liquidity of banks. Liquidity is the ability of an asset to be converted into cash quickly and without any price discount or without affecting the assets price. Through digital banking banks are able to deepen liquidity in existing markets, for example by reducing excessive reliance on a narrow base of depositors for funding. Moreover, digital banking contributes to the improvement of asset quality and the level of performance realized in earnings after tax has increased as observed by the trend in terms of growth for the last five years since the banks adopted digital banking.To successfully cope with the challenge of digital banking, the banking sector must understand the nature of the changes that revolves around them, changes in terms of technology, Innovation and Demography. Without this understanding, attempts to migrate to technology may be doomed to failure. Today, banks that are well equipped with a good grasp of the electronic banking phenomenon will be more able to make informed decisions on how to transform technology and to exploit the opportunity in electronic banking.In today’s competitive market, establishing core capabilities can help the banking industry reorganize their product and customer service delivery, so as to sustain competitive advantages and to achieve congruence whilst shifting from the conventional banking to electronic banking and hence enhance the financial performance of the institutions.

5.3 Policy RecommendationsBased on the findings and conclusions of the study, the following recommendations havebeen suggested in relation to digital banking. There is need for banks to adopt digital banking since this will provide the benefits of constant access to certain core services and reducing theneed for one to go to the banking hall. Digital banking adoption by the banks has promptedagreements to share systems between banks and the development of cash points being installed in non-branch locations such as supermarkets; this .means that a proportion of a particular banks customer base may no longer use the bank’s branch network at all. Continuous technology innovation will lead to increased customer satisfaction due to more choices created of transacting business.Like many businesses, turnover in banks is high but liquidity is not necessarily high. Hence there is need to adopt financial innovations in digital banking to improve liquidity in banks.The study had shown that banks that had adopted digital banking had improved their liquidity.Adoption of digital banking enables operations of banks to be more efficient through making financial services more available and reducing their costs. This was mostly achieved by technological innovations such as ATM, smart cards, electronic fund transfer, electronic home banking and electronic office banking. Financial products that are delivered through digital banking are user friendly and promote banks revenues, increased profits, increased liquidity and lower the risks related to the usage of financial services.The research therefore recommends that the banks seeking to improve financial performance should embrace digital banking.Some financial innovations decrease risk and volatility associated with globalizing markets. With greater globalization, firms, investors and governments are exposed to new risks such as exchange, interest rate and political risks which ICT seek to manage. The rapid proliferation and diffusion of technology in the Banking Industry of Kenya should provide a platform to use modern technologies to develop operational efficiency and quality of service to attain and retain customers and in the process enhance the financial performance of the commercial banks .Banks in Kenya should proactively monitor customers preferences with regard to technological innovations such as ATMs and try to implement these preferences in their features in order to enhance their functionalities leading to enhanced financial performance.

Technology should be fully funded and receive unconditional support from management in order to realize the full potential of incorporating technology in the banking sector. Customers should be a high priority when deciding to adopt any form of digital banking in the operations of the banks. Prior information and education of any form of digital banking should be considered to ensure a smooth transition and reduce stagnation of processes and procedures.

5.4 Limitations of the StudyThe target population in this study consisted of banks that were dully registered with Central Bank of Kenya and have been in existence for a period not less than ten years; this left out the larger population of banks such as those that have been established in the recent years have fully incorporated digital banking in their operations.Some of the respondents were suspicious about the study and left gaps on the questionnaires for fear that the confidentiality of certain information about their banks may be exposed to competitors and other parties. This fear was in spite of the respondents not being required to necessarily disclose the identities of their banks. In addition each questionnaire was attached with an assurance letter to the respondents that their responses would be treated with ultimate confidentiality and solely for academic purpose. This deprived the study some necessary information.Another limitation of the study was that, the sample of the study consisted mostly ofhighly educated staff and customers; it is likely that the study restricted itself only to certain group with similar demographic characteristics. The sample size used in the study could therefore be considered to be not representative enough.The study also used drop pick later method of the questionnaires in data collection; this issuspected to be the reason for non-response in some questionnaires as compared to thecase where the researcher personally administers the questionnaire and takes the respondents through the process. Personal administration of questionnaires would ensure data collected is adequate.5.5 Suggestions for Further StudiesThe researcher recommends the following areas for further studies; the researcher suggests that for effective conclusive study the impact of digital banking on the banking industry in Kenya, a replica study be carried out in another industry for example the insurance sectors for comparison of results. Probably a case study/in depth approach would uncover more.Questionnaires targeting staff and customers of the individual banks were used to collect data inthis study. The researcher suggests that in future studies be conducted using interview guide and involving the respondents into discussions. This would help the researcher direct the conversation towards topics and issues on forms of digital banking adopted and the challenges faced.The sample size should also be increased to cover more players in the banking sector. Certainlyacknowledging that financial institutions are currently adopting digital forms in their businessoperations, the researcher suggests that a further study be carried to establish whether adoption of digital banking increases the demand for product or services from banks.

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APPENDIXQUESTIONNAIRESECTION A: BACKGROUND INFORMATION OF THE RESPONDENTS1. What is your total experience in the banking industry (please tick inside therelevant brackets).1 year { }2 – 5 years { }5 – 1 0 years { }Over 10 years { }2. How long have you worked with your current bank?1 year { }2 – 5 years { }5 – 1 0 years { }Over 10 years { }3. Kindly indicate your job designation.Finance manager { }Business manager { }IT manager { }Others please specify { }4. Please indicate the level of education.Diploma { }Undergraduate Degree { }Post graduate degree{ }
SECTION B: ICT AND FINANCIAL PERFORMANCE5. To what extent do banks make use of the following technologicalinnovations in its operations? Use a scale of 1 to 5 where 1 is to a very greatextent and 5 is to no extent.

Technological innovation 1 2 3 4 5
Mobile banking technologies Electronic money transfer Internet banking transactions Electronic Data Interchange ATM deposits and withdrawals Smart cards Other (specify) 6. Would you agree that the adoption of digital banking is very important in the improvement ofcapital adequacy of banks?Agree ( )
Disagree ()Neither Agree nor Disagree ( )Please give reasons for your answer7. How would you rate the importance of financial innovations in the improvement of thecapital adequacy in the organization?High()Moderate ()Low ( )Please explain8. To what extent has digital banking improved the capital adequacy of the bank?Great extent ()Moderate extent ()Low Extent ()Please explain….9. Would you agree that the adoption of digital banking has led to an improvement in the liquidity ofbanks?
Yes ()
No ()Please give reasons for your answer10. Would you agree that the adoption of digital banking had contributed to the improvement ofasset quality of banks?Agree ()Disagree ( )Neither Agree nor Disagree ( )Please give reasons for your answer11. Would you agree that the adoption of digital banking is very important in the improvement ofearnings of banks?Agree ( )Disagree ( )
Neither Agree nor Disagree ( )Please give reasons for your answer12. Do you agree that banks are adopting various forms of digital banking to improve their operations?Agree ( )Disagree ( )Neither Agree nor Disagree ( )Please give reasons for your answer