IMPACT OF ELECTRONIC BANKING ON THE PROFITABILITY OF COMMERCIAL BANKS IN KENYA

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Purpose: The study sought to determine the impact of electronic banking on the profitability of commercial banks in Kenya. Methodology: The study adopted a descriptive research design. The population of the research consists of the 43 commercial banks in operations as at 31st 2014 in Kenya. A census survey was undertaken. The study used secondary data obtained from various Central Bank of Kenya publications. Statistical Package for Social Sciences (SPSS) was used in the analysis of data. Descriptive statistics produced trends, means and percentages while inferential statistics produced regression and correlation results which showed the causal relationship among the variables. Results: Results from multiple regression indicated that there is a there a positive significant relationship between ATM transactions and bank profitability (p<0.05-0.004). A unit increase in ATM transactions leads to an increase in ROE (bank profitability) by 1.662 units. Further, the study found a positive significant relationship between POS transactions and bank profitability (p<0.05-0.021). A unit increase in POS transactions lead to an increase in ROE by 1.34 units. Trend analysis revealed that ATM transactions had a general positive trend over time. The highest volume of ATM transactions was registered in 2012. POS transactions have also steadily increased between January 2007 and June 2015. There has been an exponential positive growth in mobile transactions since the inception of M-Pesa in 2007. The average ROE of commercial bank has been relatively stable over the period covered by the study. The study used descriptive statistics was used to summarize the relationship between the independent variables and the dependent variable. Results indicated that the model of the study explained 16.9% of the dependent variable. The ANOVA tests further validated the model by indicating that it sufficiently explained the variation of profitability in commercial banks (F=6.407, p=0.000 Unique contribution to theory, practice and policy: The study recommends that commercial banks increase their ATM networks and encourage the use of payment cards at POS terminals. The study also recommends an income diversification strategy. Commercial banks should consider their charges on ATM withdrawals. Commercial banks should also consider partnering with each other so that the clients can carry out transactions at any ATM regardless of where they bank. Commercial banks should also ensure proper maintenance of ATM outlets to ensure quality service delivery to their clients. ATM outlets should also be strategically to be accessible to as many clients possible. Commercial banks should also partner with retail outlets like supermarkets and other service providers to increase the use of banking services at point of sale terminals. Campaign ads should be undertaken by banks to inform the public on the benefits of using the cards to pay at retail outlets. It is also recommended that commercial banks inform their clients on the retail outlets at which they can use their cards to pay for goods and services.