Branchless Banking and Financial Performance of Commercial Banks in Kenya

Abstract

Commercial banks remain the principal constituents within the financial sector. Their performance is important since it serves other sectors, for example fishing, agriculture, manufacturing, energy and petroleum, mining, hospitality as well as tourism within the economy. Commercial banks’ performance shows a direct effect towards the overall economy and hence there is need for stability in their performance. The current study targets to evaluate how branchless banking impacts financial health of banks. The study aims to establish how banking via mobile phones affects Kenyan banks' performance, how ATM banking affects Kenyan banks' performance financially, how financial deepening affects Kenyan banks' performance financially due to branchless banking, and how regulations affect Kenyan banks' performance financially due to branchless banking. The study was in accordance with agency theory, financial deepening theory, and innovation diffusion theory. The study employed a correlation design and collected secondary data on commercial banks from 2012 to 2020. Causal research design was utilized, and all 39 commercial banks were included in the study. Regression analysis for data spanning eight years (2012-2020) was used. The study findings indicated that branchless banking has a significant impact on the financial performance of commercial banks in Kenya, with financial deepening playing a significant mediating role. Furthermore, bank regulations had a significant moderating effect on the relationship between branchless banking and commercial bank financial performance. The study recommends that commercial banks adopt branchless banking through mobile and ATM banking, increase customer usage of mobile banking, expand ATM banking services, and enhance financial deepening.