Impact of mobile and internet banking Essay

Abstractfiscal institutions withstand been in the process of remarkable transformation. The force behind the transformation of these institutions is knowledge openness in breeding applied science. Information and dialogue technology is at the affection of this global change curve of long awake and mesh depositing in Kenya. quick development of breeding technology has made desireing tasks to a greater finis efficient and cheaper. This matter sought todetermine the impact of prompt and ne twainrk-banking on realizeance of m wizardtary institutions in Kenya where the survey was needed on m whiztary institutions in Nairobi. The study besides sought to identify the extent of rehearse of supple and earnings banking in pecuniary institutions. The study inquired 30 pecuniary institutions. The study found that the close to prevalent network banking service is balance inquiry eyepatch the to the lowest degree is online bill payment. Cash withdrawal was the most comm solitary(prenominal) characterd supple banking service whereas purchasing commodities was the least commonly apply.CHAPTER ONE.INTRODUCTION.Background of the study smooth banking is an creation that has progressively rendered itself in pervasive focal points cutting crossways several monetary institutions and other sectors of the economy. During the 21st century unstable banking ripe(p) from providing mere text messaging services to that of pseudo meshwork banking where customers could non only locating their balances and set up multiple types of alerts but overly transact activities such(prenominal) as fund imparts, redeem loyalty coupons, bind cheques via the bustling bring forward and instruct payroll based transactions (Vaidya 2011). The serviceman has also become increasingly addicted to doing business in the cyber space, crossways the lucre and World Wide Web. mesh commerce in its confess respect has expanded in versatile innovative forms of m cham piony, and based on digital entropy issued by private market actors, has in one way or a nonher tackd for state sanctioned bank notes and checking broadsheets as customary means of payments (Cohen 2001).Technology has greatly advanced playing a major role in improving the touchstones of service delivery in the financial institution sector. Days atomic itemize 18 long gone when customers would get hold in the banking h every(prenominal)s waiting to pay their utility bills, school fees or either other financial transactions. They privy now do this at their thingmabob by exploitation their ATM cards or over the meshwork from the comfort of their homes. Addition anyy due to the tremendous egression of the supple phone industry most financial institutions rent ventured into the untapped opportunity and sop up partnered with unstable phone network providers to offer banking services to their clients. ATMbanking is one of the earliest and widely adopted retail e-banking services in Kenya (Nyangosi et al. 2009). as yet according to an annual report by telephone exchange cuss of Kenya its arrive at toation and employ has been surpassed by roving banking in the last few days (CBK 2008). The suggested reason for this is that many low income earners now gain coming to mobile phones. A positive aspect of mobile phones is that mobile networks be usable in remote areas at a low make up. The poor frequently arrest greater familiarity and trust in mobile phone companies than with ruler financial institutions. verifyingIn general terms, banking is the business activity of pass judgment and safeguarding groovy owned by other individuals and entities and then lending out this capital in prepare to earn a profit. The bank buildinging Act of Kenya defines banking to mean the accepting from members of the public of gold on deposit repayable on exact or at the expiry of a fixed period or later notice, the accepting from members of the publ ic of cash on current account and payment and acceptance of checks and the employing of money held on deposit or on current account or any part of it by lending, enthronization or in any other manner for the account and the chance of the person so employing the money. Currently Kenya has 43 licensed mercantile banks of these, 31 are locally owned and 12 are foreign owned.Citibank, Habib Bank, standard chartered and Barclays Bank are among the foreign-owned financial institutions in Kenya. The government of Kenya has a substantial stake in three of Kenyas commercial banks. The stay local commercial banks are largely family owned. Commercial banks in Kenya accept deposits from individuals and make a profit by using the deposits to offer loans to businesses at high interest rates. These banks are regulated by the Central Bank Act and the Companies Act, which stipulates the activities they should be engaged in, the rules on publishing of financial statements, token(prenominal) capi tal requirements as vigorous as reserve requirements. Examples of upstart psychiatric hospitals in the Kenyan banks take on word sense of ATMs, smart cards, internet and mobile banking as discussed below.Mobile bankingMobile banking (m-banking) refers to provision and availment of banking andfinancial services by dint of the suffice of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, administer accounts and to access customized schooling. Mobile networks in Kenya offer m-money services in the name of M-pesa by Safaricom, Orange money by Orange, Yu-cash by Essar, and Airtel money by Airtel. Currently the mobile money market size is to the highest degree 15 million partrs transferring Kshs. 2 one million million million daily, of these over 14 million are Mpesa customers. M-money providers concur partnered with commercial banks such as Equity Bank, I&M Bank, and Kenya Commercial Bank, Barcl ays and Co-operative to offer mobile based financial products that aim to reach the unbanked. network banking net banking (e-banking) is the use of internet and telecommunication networks to deliver a wide range of honour added products and services to bank customers (St rase, 2002) through the use of a system that allows individuals to perform banking activities at home or from their offices or over the internet. few online banks are traditional banks which also offer online banking, while others are online only and have no physical presence. Online banking through traditional banks alters customers to perform all mo transactions, such as account transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer online loan applications. Customers can access account entropy at any time, day or night, and this can be done from anywhere. Internet banking has improved banking efficiency in rendering services to customers. Financial institutions in Kenya cannot ignore information systems since they play an important role in their operations because customers are conscious of technological advancements and demand higher quality services. conundrum StatementA fundamental assumption of most recent look into in operations improvement and operations learning has been that technological innovation has a put bearing on procedure improvement (Upton and Kim, 1999). strategic management in financial institutions demand that they should have effective systems in distance to counter unpredictable events that can sustain their operations while minimizing the risks involved throughtechnological innovations. Only financial institutions that are able to adapt to their changing environment and adopt new ideas and business methods have guaranteed survival. Some of the forces of change which have impacted the public presentation of financial institutions in the main include technological advancements such as use of mobile phones and the internet . Since the stock of e-banking Kenyan financial institutions have witnessed many changes. Customers now have access to fast, efficient and convenient banking services.Most financial institutions in Kenya are spend large sums on money in information and communication technology (ICT). However while the rapid development of ICT has made some banking tasks more efficient and cheaper, technological advancements have their fair share of problems for example they take a large share of bank resources, plastic card spoof particularly on lost and stolen cards and counterfeit card fraud. and then on that point is a need to manage cost and risks associated with internet banking. It is decisive that internet banking innovations be made through sound depth psychology of risks and cost associated to avoid harm on banks performance. Bank performance is directly interdependent on efficiency and military posture of internet banking and on the other baseball glove tight go overs in standar ds to prevent losses associated with internet banking.In order not to impair on their prosperity, financial institutions need to strike a balance between tight controls and standards in efficiency of internet banking. This is only possible if the effects of internet banking on financial institutions and its customers are soundly analyzed and lowstood. Mobile money has emerged as a well-set emulation to financial institutions in Kenya. Initially cellular phones were developed to improve communication from the earlier primitive forms of communications such as smoke and drums. Financial institutions introduced ICT as an improvement to the banking channels. This has thus enabled bank customers access information relating to their accounts, (Tiwari, Buse and Herstatt, 2007.).In this regard mobile phone service providers have taken mobile money services deeper into the financial sector by offering a range of financial services through their networks. The CBK and the Communication Comm ission of Kenya (CCK) have allowed service providers to offer mobile money services as there appears to be no reprieve as competition in the mobile money business is still heating up with entry of new money transfer systems which now allow transactions across all mobiletelephone service providers corresponding M-pesa.Objectives of the study.The study objectives areTo effect the impact of mobile and internet banking on the performance of financial institutions in Kenya. To establish the extent of use of mobile and internet banking in financial institutions in Kenya.Significance of the studyThe study willing be crucial to emerging financial institutions as it will provide answers to the factors against the implementation of internet banking in Kenya, prove of the success and growth associated with the implementation of internet banking and highlight the areas of banking operations that can be enhanced via internet banking. It is equally significant for bank executives and indeed th e policy makers of the banks and financial institutions to be aware of internet banking as a product of internet commerce with a view to making strategic decisions. The study is also expected to give an brain wave on the state of mobile money services as a competition to the commercial banks in Kenya and the factors that have greatly influenced its growth.Players in the financial institution sector and telecommunications industry will find the study efficacious as they can use the findings to strategize on how they can inversely clear from this development. Finally, our study adds to the existing literature, and is a valuable tool for students, academicians, institutions, corporate managers and individuals who want to learn more about mobile and internet banking.Limitations of the studyIn undertaking this study a number of challenges were faced. There was bureaucracy in getting approval to respond to questionnaires with most institutions insisting that permission be sought from the Chief Executive Officer or Human resource Manager. This led to delays in obtaining the infallible responses for selective information analysis in time. Some customers were unwilling to divulge information and seemed to not have time to gather in the questionnaires.CHAPTER TWO.Literature Review.This chapter seeks to explore in depth the concept of internet and mobile banking through a review of the various theories as well as empirical studies. Theoretical frameworkTheory of information toil and contemporary banking possible action Diamond (1984) suggested that frugal agents may find it worthy to produce information about possible investment opportunities if this information is not free for exemplar surplus units could incur substantial search costs if they were to seek out borrowers directly. There would be duplication of information intersection costs if there were no banks as surplus units would incur immense expenses in seeking out the relevant information before they move over funds to a borrower. Banks enjoy economies of scale and have expertise in processing information related to deficit units (borrowers). They may obtain information upon first contact with borrowers but in real sense its more likely to be learned over time through repeated dealings with the borrower.As they develop this information they develop a doctrine rating and become experts in processing information. As a result they have an information advantage and depositors are willing to place funds with a bank knowing that this will be order to the appropriate borrowers without the former having to incur information costs. Bhattacharya and Thakor (1993) contemporary banking theory suggests that banks, in concert with other financial intermediaries are essential in the allocation of capital in the economy. This theory is centered on information asymmetry, an assumption that divergent economic agents possess different pieces of information on relevant economic variables, in that agents will use this information for their own profit (Freixas and Rochet 1988). lopsided information leads to adverse selection and moral hazard problems. Asymmetric information problem that occurs before the transaction occurs and is related to the lack of information about the lenders characteristics, is known as adverse selection. Moral hazard takes place after the transaction occurs and is related with incentives by the lenders to behave opportunistically.Innovation distribution theoryMahajan and Peterson (1985) defined an innovation as any idea, object or go for that is perceived as new by members of the social system and defined the diffusion of innovation as the process by which the innovation is communicated through certain channels over time among members of social systems. Diffusion of innovation theory attempts to explain and describe the mechanisms of how new inventions in this case internet and mobile banking is adopted and becomes successful Clarke (1995). Sevcik (2004) verbalize that not all innovations are adopted even if they are good it may take a long time for an innovation to be adopted.He further stated that resistance to change may be a hindrance to diffusion of innovation although it might not stop the innovation it will tiresome it down. Rogers (1995) identified five critical attributes that greatly influence the rate of adoption. These include relative advantage,compatibility,complexity,triability and observability. check to Rogers, the rate of adoption of new innovations will depend on how an organization perceives its relative advantage, compatibility, triability,observability and complexity.If an organization in Kenya observes the benefits of mobile and internet banking they will adopt these innovations given other factors such as the availability of the required tools. Adoption of such innovations will be faster in organizations that have internet access and information technology departments than in organizations wi thout.Empirical studiesInternet bankingRecent literature has a narrow focus and ignores internet banking near entirely it equates internet money with the substitution of currency with internet gadget. For instance Freedman (2000) suggests that internet banking and internet money consists of three devices access devices, stored nurse cards, and network money. Internet banking is simply the access to new devices and is then ignored. Internet money is the sum of stored look on (smart cards) and network money ( take to be stored on calculator hard drives). Santomero and Seater (1996), Prinz (1999) and Shy and Tarkka (2002) present models that identify conditions under which alternative payments substitute for currency.Most of these models indicate that there is at least a orifice for internet substitutes for currency to emerge and flourish on a wide scale depending on the characteristics of the various technology and those of the potential users. Friedman (1999), intimated that int ernet banking presents the adventure that an entire alternative payment system not under the control of the Central Bank may arise. Today computers make it at least possible to bypass the payment system altogether, instead using direct bilateral clearing and settlement (Friedman, 1999).Trends in mobile and internet banking in KenyaWith the emerging wave of information driven economy, the banking industry in Kenya has ineluctably found itself unable to resist technological indulgence. This has led to a break in development of mobile banking laying down a strong base for low cost banking, and growth of mobile phone use in rural Kenya. Standard Chartered in 2009 launched its mobile banking in seven markets in Africa. In the Kenyan market it offers a number of services on a funny, user-friendly platform called Unstructured accessory Services data (USSD) and is only available on GSM carrier networks which enable customers to access banking in real time, anywhere in the world, throu gh their mobile phones. The platform is a convenient menu-driven application that is not dependent on specific customer handsets and does not need to be downloaded.Barclays banks m-banking platform is known as hello money. It allows customers to carry their bank in their mobile and access banking services anytime/anywhere on the move. unconnected other players in the sector this is all for free. Co-operative bank pioneered mobile banking way back in 2004 by enabling customers to access their accounts and transact using their mobile phones. It offers services such as balance enquiries, mini-statements, SMS alerts on credit and debit transactions to an account, pay utility bills and funds transfer. Equity bank on the other hand has its own m-banking platform known as Eazzy 24/7 offering services similar to those of co-operative bank. Telephone and PC banking is a facility that enables customers, via telephone calls, find out about their purview with their bankers by merely dialing t he telephone numbers given to them by the banks. In addition, the computers on the phone would require special codes given to the customers as a means of identification of authentic users before they can receive any information they requested for.Telephone and PC banking brings the bank to the doorstepof the customer, it does not require the customer to leave his premises. The card system is a unique internet payment type. Smart cards are plastic devices with engraft integrated circuit beingness utilise for settlement of financial obligations. Depending on the sophistication, it can be apply as a Credit Card, account Card and ATM cards. The cards are internetally loaded with cash value and can be carried around like cash and store information on a microchip. The microchip contains a purse in which value is held internetally. In addition, it also contains security programs which protect transactions between one card user and the other. It can also be transferred directly to a re tailer, merchant or any other outlet to pay for goods and services, and like cash, transactions between individuals without the need for banks or any other tertiary parties. Also, the system does not require central clearing, it is valued immediately.CHAPTER THREE. seek methodologyA inquiry methodology guides the inquiryer in collecting, analyzing and interpreting observed facts (Bless and Achola, 1988). This chapter introduces the logical framework to be followed in the process of conducting the study. It is divided into look into design, population and sample, data collection and data analysis.Research DesignAccording to McMillan and Schumacher (2001) a research design is a plan for selecting subjects, research sites and data collection procedures to answer the research questions. It is the conceptual framework within which research is conducted and constitutes the blueprint for the collection of data and the analysis thereof of the collected data Based on the purpose of the study and the type of data involved, descriptive and qualitative research designs were utilize. The goal was to provide a clear concord of mobile and internet banking and its manipulation in financial institutions and therefore finish on the impact it has had on their performance. Qualitative data was collected from the managers, mortify staff as well as from customers of the financial institutions.Population and Sample. cooper and Emory (1995) define population as the total collection of elements about which the detective wishes to make some inferences. An element is the subject on which the measurement is being taken and is the unit of the study. The population of interest in this study consisted of 61 financial institutions operating in Kenya of which only 30 responded. The managers, employees and customers were targeted as the notice respondents. There was a need to sample the population because not all the population elements use mobile and internet banking. The study t herefore utilise stratified sampling. This is the process of dividing members of the population into homogeneous subgroups before sampling. The strata should be mutually exclusive every element in the population must be assigned to only one stratum. Financial institutions were classified according to microfinance institutions, SACCOS and commercial banks where 2 microfinance institutions, 11 SACCOS and 17 commercial banks were sampled.Data Collection.Primary sources were used in data collection. Open and close-ended questionnaires were administered to target respondents. In total two questionnaires were delivered one to managers and employees and another to customers. They purposed to find out information regarding the level of usage of mobile and internet banking, demographics of the customers, services offered and used, level of satisfaction, impact on performance, opportunities for growth and challenges faced through the use of mobile and internet banking. This instrument allowe d for cost and time savings for the respondents as well as the researchers.Data abridgmentAccording to Bryman and Bell (2003) data analysis refers to a technique used to make inferences from data collected by means of a imperious and objective identification of specific characteristics. Once data is collected it has to be edited to verify to the completeness of data, coded in order to assign numbers or symbols to the various answers for effective categorization/classification, entered in order to convert the information gathered to a medium for viewing and manipulation (e.g. excel or statisticalpackage for social sciences SSPS) and finally displayed through the use of frequency tables and charts. Collected data was analyzed using twain quantitative and qualitative measures. Qualitative data regarding customer level satisfaction, challenges faced demographics and services provided and used were analyzed using content analysis to measure the semantic table of contents of the messag e. Qualitative data was analyzed using statistical data analysis. The data was tabulated in pie-charts, tables and graphs for easier understanding and presentation.Data Analysis and InterpretationThis section presents the data analysis, findings and discussion of the study in line with the research objectives of the study, the studys research objective was to establish the impact of mobile and internet banking on financial performance of financial institutions in Kenya. To achieve the objective the research raised a number specific objective to establish the extent of use of mobile banking and the extent of use of internet banking in financial institutions in Kenya.Data analysisThe response rate of the questionnaires from the three types of institutions under study was fairly high, out of the 98 questionnaires sent to the respondents, 64 questionnaires both from customers and managers/employees were re reverseed for analysis. To enhance the quality of the data obtained structured qu estions were used whereby the respondents were asked to give various indicators on mobile and internet banking. Various data were collected to encounter this study in accordance with the methodology. The software that was used for the following analysis was Microsoft excel and Statistical Package for Social Sciences (SPSS).SummaryThe study revealed that among the financial institutions surveyed, commercial banks had the highest usage of internet banking at 43.3%, SACCOs had the second highest usage of internet banking whereas none of the microfinance institutions used internet banking.Amongst all the financial institutions surveyed commercial banks had the highest usage of mobile banking, SACCOs the second highest whereas MFIs had the least usage of mobile banking even though all of them used mobile banking. Of the services provided by financial institutions via internet banking the service that customers used most was online balance inquiry (40%) whereas the least used service was online bill payment (3.3%). According to the financial institutions the customer turn out level was high (63.3%) as a result of the use of internet banking. 66.7% of the respondents indicated that internet banking had a positive impact on performance whereas only 6.7% indicated that it had not impacted on performance of the financial institutions shoemakers lastThe study was able to achieve the set objectives to explore the impact of mobile and internet banking on performance of financial institutions, as well as the extent of use of mobile and internet banking, by surveying a representative sample of financial institutions within Nairobi. The study found that commercial banks had the highest rate of usage of internetbanking among the financial institutions sampled. SACCOS are slowly adopting internet banking, while micro finance institutions have not yet adopted internet banking. The study revealed that the most prevalent internet banking services were seeking product rate informa tion and the use of online credit cards. Since its introduction in mid-2005, the adoption of internet banking has been slow due to impaired unavailability of al-Qaida and lack of supportive legislation for internet banking (Nyangosi et al 2009).However the adoption of internet banking has enhanced performance of the banking industry due to increased efficiency, effectiveness and productivity. The study found that mobile banking faces various challenges among them being, system delays by the mobile money transfer service providers, slow processing of transactions particularly during the weekends, high transactions costs, limit on the amount of money that can be withdrawn in a day and fraud. These challenges can be solved through regular maintenance of mobile money transfer systems which will help in managing the systems capacity and in turn cross the problem of transaction delays and improve customer service through speedy support and lower user charges.Suggestions for further stu dyThe study concentrate on the impact of internet and mobile banking on financial performance of financial institutions in Kenya while its evident its rampant growth impacts on the overall economy as well. Therefore, a study should be conducted to investigate the impact of mobile and internet banking on the economy.The study found that mobile banking has been adopted at a faster rate than internet banking therefore a study needs to be conducted to investigate why this is the case.ReferencesBerestien, A. (1998), fiscal insurance Implications of Digital Money, Kyklos, Vol. 51. Bhattacharya, S. and A. 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