EFFECTS OF E-BANKING ON THE FINANCIAL PERFORMANCE OF KENYAN BANKS

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ABSTRACT

This thesis aimed to study and present the status of electronic banking in Kenya and in overall the impact on the financial performance of the Kenyan banks offering electronic banking.

There is a huge gap in knowledge on the impacts of electronic banking on banks’ financial performance in Kenya across different people. Most people are account holders of banks but are not aware that the same banks offer convenience through e-banking. This thesis aimed to not only study and explore the history and progress made over the years but also to report and fill the massive knowledge gaps among Kenyan bank account holders, scholars and researchers.

The number of banks in Kenya is too high, thus this study was limited to only a few top banks that enjoy customer loyalty as shown by customer numbers and their (banks) popularity.


The central findings of the study as well as the main results and conclusions of the study were published, and conclusions were made. It was found out that bank profits have gone up tremendously after the introduction of electronic banking in the banks involved in this study.


TABLE OF CONTENTS

CHAPTER ONE
1. INTRODUCTION
1.1 Background of the study
1.3 Objective of the study
1.3.1 General objectives
1.3.2 Specific objectives
1.4 Research Questions
1.5 Justification of the study
1.6 Importance of the study
1.7 Limitations of the study
1.8 Scope of the study
1.9 Definition of terms

CHAPTER TWO
2. LITERATURE REVIEW
2.1 Introduction
2.2       Theories in electronic banking
2.2.1    Definition of electronic banking
2.2.2    Types of electronic banking
2.2.3 Risks of electronic banking
2.3 The Contextual Environment
2.4 Empirical literature review
2.5 Research problem

CHAPTER 3
3. RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Sample or Sample techniques
Table 1: Population Stratum
3.4 Data and Data collection Techniques
3.5 Validity and Reliability
3.6 Data Analysis Methods
3.7 Findings and Presentation

CHAPTER 4
4. DATA ANALYSIS AND FINDINGS
4.1 Introduction
4.2 General Information
4.2.1 Response Rate
4.2.2 Number of Branches Covered
4.2.3 Time of Operation
4.2.4: Range of services offered electronically by the bank
4.2.5: Level of service delivery
4.3 Profitability
4.3.1 Range of Profits over the Previous Years
4.3.3: Impact on financial performance
4.4 Cost
4.4.1: How costly is electronic banking
4.4.2 Type of Costs Incurred
4.4.3 Increase in Costs
4.4.4 Measures Put In Place
4.4.5 Benefits
4.5 Services
4.5.1: Services offered
4.5.2: Reliability
4.5.3: Service Improvement
4.5.4 Impact on Financial Performance
4.5.5 Challenges faced
4.6. Chapter Summary
4.6.1 Profitability
4.6.2 Costs
4.6.3 Services

CHAPTER 5
5. CONCLUSION, DISCUSSION AND RECOMMENDATIONS
5.1 Introduction
5.2 Discussion
5.2.1 Profitability
5.2.2 Cost
5.2.3 Services
5.3 Conclusion
5.3.1 Impact of Electronic Banking on Profitability
5.3.2 Impact of Electronic Banking on Costs
5.3.3 Impact of Electronic Banking on Services
5.4 Recommendations
5.5 Limitations of the study
5.6 Further Research
References
APPENDICES
Appendix 1: Questionnaire
APPENDIX 2 - WORKING PLAN


CHAPTER ONE

1. INTRODUCTION


1.1 Background of the study


Electronic banking can be defined as the automated, smooth and efficient delivery of modern and traditional banking services through electronic and communicative channels. It includes the systems that customers use to access accounts, transact businesses and obtain information through networks, including the internet. These networks could be private or public. Electronic banking is, therefore, a general term describing the whole process of performing such transactions without the need to physically visit the financial institution. All of the following terms refer to different forms of electronic banking; personal computer (PC) banking, online banking, home banking, mobile banking and virtual banking (Shan, 2000).

Virtual banking is the situation where banks do all their transactions online by the use of mobile, emails and Automated Teller Machines without having a physical location while online banking involves the bank having a physical location but offering services online.


In Kenya, various banks have launched electronic banking. The banks include; National Bank of Kenya, Barclays Bank, Standard Chartered Bank, NIC Bank, CFC Stanbic Bank, and Equity Bank just to mention a few among the market leaders. The concept of electronic banking was first conceived in the mid-70s. However, with the high cost of internet that resulted to lack of internet users, growth of electronic banking was stunted. During the internet boom of the mid to late 90s, people started to ease up about making transactions over the internet. Electronic banking grew alongside the internet. Despite that growth that was inevitable, customers were still reluctant and hesitant to carry out monetary transactions over the internet. It took widespread adoption of e-commerce which was based on innovative companies such as AOL, Amazon and eBay to make the idea of online purchasing common. Up until 2000, over 80% of American banks offered online banking services and growth was slow. For example, at Bank of America, it took 10 years to attain 2 million customers of e-banking. However, an important cultural change happened after the Y2K scare (year 2000) where humans thought that computers were only able to store 2-digit figures and that it will come to an end. According to Egland et al., (2008), the main attraction to electronic banking is the elimination of the tiresome bureaucratic red tape in registering personal details as well as other services have translated into a literal boom in the banking industry over the last five years.

Large national banks, regional and even smaller banks and credit unions offer e-banking known as PC banking, home banking, online banking or internet banking. Those that do are sometimes referred to as brick to click banks and can be distinguished from brick and mortar banks since they have yet to offer electronic banking from virtual or online banks that have no physical branches or tellers anywhere (Ombati et al., 2011). Many new virtual banks have entered the banking industry, and this has enabled customers to have access to financial services over the internet. The cost savings have helped Internet-based banks offer lower or no service fees and higher interest rates on interest-bearing accounts than traditional banks (Shan, 2006).

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