EFFECTIVENESS OF MOBILE BANKING IN KENYA

A RESEARCH PROJECT PROPOSAL SUBMITTED IN PARTIAL

FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF
DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA),
SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI

NOVEMBER 2012

TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION ......................................................................... 1
1.1 Background of the Study ................................................................................. 1
1.1.1 Mobile Banking ......................................................................................... 2
1.1.2 The Banking Industry in Kenya ................................................................. 3
1.2 Statement of the problem ................................................................................ 4
1.3

Objectives of the study .............................................................................. 6

1.4 Value of the study............................................................................................ 6

CHAPTER TWO: LITERATURE REVIEW ............................................................. 7
2.1 Introduction ..................................................................................................... 7
2.2 Introduction to M-Commerce .......................................................................... 7
2.3 Mobile banking: M-Commerce in the banking sector..................................... 8
2.4 Trends in Mobile Banking ............................................................................... 9
2.6 Mobile Banking Business Models ................................................................. 13
2.6.1 Bank-led model ........................................................................................ 13
2.6.2 Bank-focused model ................................................................................ 13
2.6.3 Non bank-led model ................................................................................. 14
2.7 Advantages of mobile banking to providers and consumers ......................... 14
2.7.1 Benefits to banks ...................................................................................... 14
2.7.2 Benefits for customers ............................................................................. 15
2.8 Critical success factors for M-banking .......................................................... 15
2.9 Challenges for a mobile banking solution ..................................................... 16
CHAPTER THREE: RESEARCH METHODOLOGY ............................................ 19
3.1 Introduction ................................................................................................... 19
3.2 Research Design ............................................................................................ 19
3.3 Study Population ........................................................................................... 19
3.4 Data Collection .............................................................................................. 19
3.5 Data Analysis ................................................................................................ 20

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REFERENCES .......................................................................................................... 21
APPENDICES ........................................................................................................... 27
APPENDIX 1: QUESTIONNAIRE .......................................................................... 27
APPENDIX 2: LIST OF BANKS ............................................................................. 31

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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study
The remarkable gains made towards mobile phone access have seen a steady progress in the
scope of innovations emanating from exploitation of these fairly new technologies. What has
characterized the Kenyan mobile landscape is a rapid uptake of various services key among them
the mobile based products. Mobile banking is one innovation which has progressively rendered
itself in pervasive ways cutting across numerous sectors of economy and industry.

An appropriate banking environment is considered a key pillar as well as an enabler of economic

growth. With the continuously emerging wave of information driven economy, the banking
industry in Kenya has inevitably found itself unable to resist technological indulgence. The need
for convenient ways of accessing financial resources beyond the conventional norms has seen the
recurrent expansion and modernization of banking patterns. Given the huge demand for finance
oriented services, institutions beside the historical banks have joined the fray in an attempt to
grab a piece of the perceived cake of opportunity within the banking industry.

According to Financial Sector Deepening Kenya (FSD Kenya), the most recent data in available
indicates that only 19% of adult Kenyans reported having access to a formal, regulated financial
institution while over a third (38%) indicated no access to even the most rudimentary form of
informal financial service. This leaves a percentage of more than 80% outside the bracket of the
reach of mainstream banking.

The pent up demand for an affordable and reliable way of holding funds while ensuring that risk
levels are consigned to a minimum is consistently unfolding. A system with the potential to
obliterate the historical hurdles of cost and free access which have for a long time stood in the
way of willing partakers of banking services evokes immediate attention and interest. The
unprecedented uptake of mobile phone banking services in Kenya is a testament to this fact.

1.1.1 Mobile Banking

Mobile banking (also known as M-Banking, mbanking or SMS banking) is a term used for
performing balance checks, account transactions, payments, credit applications and other
banking transactions through a mobile device such as a mobile phone or Personal Digital
Assistant (PDA). The terms Mobile Phone banking and mobile banking (M-Banking) are used
interchangeably. It is used to denote the access to banking services and facilities offered by
financial institutions such as account-based savings, payment transactions and other products by
use of an electronic mobile device. Mobile banking has yielded a multiple effect on the number
of solutions available to clients. This is in addition to more efficient transactional environment
and the high substitution of banking points.
Porteous (2006) distinguishes two aspects of mobile banking: Additive and transformational
characteristics. Additive aspects are those in which the mobile phone is merely another channel
to an existing bank account. Mobile banking is additive when it merely adds to the range of
choices or enhances the convenience of existing customers of mainstream financial institutions.
Transformational characteristics arise when the financial product linked to the use of the phone
is targeted at persons who do not hold formal bank accounts with the conventional banking
institutions.

Sarker and Wells (2003) assert that the only single access requirement or barrier to the resultant
mobile banking will be the mobile phone. However, worldwide market penetration of affordable
cellular devices and growing network service diffusion makes this intricacy almost fully resolved
hence setting a firm pedestal for mobile banking escalation.

The effects of usage associated with mobile phone banking in Kenya are yet to be consolidated
or quantified in a well documented fashion. With the dramatic adoption of mobile banking
services this study seeks to extend its scope of analysis to indicators that reflect the nature of
usage. This ranges from overall patterns of use, access and provision strategies and consumption
patterns. Mobile banking started with the creation of services by banks which could be accessed
through the mobile phone. These facilities aimed to enable customers access information
relating to their accounts.
2

Subsequent innovations have seen the mobile banking phenomena continue to grow steadily.
Mobile banking takes several dimensions of execution all representing a new distribution
channel that allows financial institutions and other commercial actors to offer financial services
outside traditional bank premises.
1.1.2 The Banking Industry in Kenya
The banking sector in Kenya is governed by the companys Act, the Banking Act and the Central
bank Act and the various prudential guidelines issued by Central Bank of Kenya .The banking
sector was liberalised in 1995 and exchange controls lifted. The Central Bank of Kenya is
responsible for formulating and implementing monetary policy directed to achieving stability in
the general level of prices and fosters the liquidity, solvency and proper functioning of a stable
market based financial system while supporting the economic policy of the Government (Central
Bank of Kenya, 2011).

As at 31st December 2011, the banking sector comprised of the Central Bank of Kenya, as the
regulatory authority, 44 banking institutions (43 Commercial banks and 1 Mortgage finance
company), 2 representative offices of foreign banks, 5 Deposit-Taking Microfinance Institutions
and 126 Forex Bureaus. 31 of the banking institutions are locally owned while 13 are foreign
owned.

The locally owned financial institutions comprise of 3 banks with public shareholding, 27
privately owned commercial banks, 1 mortgage finance company while 5 Deposit-Taking
Microfinance Institutions and 126 forex bureaus are privately owned (Central Bank of Kenya,
2011). The foreign owned financial institutions comprise of nine locally incorporated foreign
banks and four branches of foreign incorporated banks. The sector was dominated by local
private institutions with 27 institutions accounting for 58.0 percent of the industrys total assets
and 64% of total financial institutions. The foreign owned financial institutions were 13 and
accounted for 37.2 percent of the industrys total assets as at 31.12.2011 and 36% of total
number of financial institutions. Multinational banks play an important role of intermediation in
the economy which is vital for the smooth and efficient running of the economy (Central Bank of
Kenya, 2011).
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In 2011, a number of banks responded to the growing need of convenient straight-through

payments using mobile solutions. As a result, a number of banks continued to sign up
partnerships with money transfer service providers as they improve their banking-on-the-move
menus. In only four years of existence of mobile phone money transfer services, four mobile
operators have enrolled over 15 million customers. Some of the notable mobile money solutions
launched during the year include; M-Kesho, Mobicash, Orange money, Yu-cash, Elma, PesaPap, Pesa-Connect among others. M-Pesa was still the most widely used method of mobile
money transfer as evidenced by the 305.7 million transactions effected and valued at Ksh. 727.8
billion in the year (Central Bank of Kenya, 2011).

Banks continued to embrace the use of the Internet as a remote delivery channel for banking
services. The most common online services include; viewing of accounts, inquiries and requests,
salary payments, clearing cheques status query, instant alerts of account status and transfer of
funds. The microfinance industry in Kenya is also experiencing positive growth and change.
Microfinance has over the years evolved from charity based social and financial empowerment
programmes to fully operational financial institutions, which continue to contribute towards
bridging the gap of financial inclusion. Further, the microfinance sector is witnessing increased
interest from commercial banks (Central Bank of Kenya,2011).

1.2 Statement of the problem

The field of M-Banking is fairly new and fast evolving. It also rests at the overlap of several
domains including those of banking, telecommunications and security. The overlap substantially
raises issues of operational or regulatory concern. Porteous (2006) asserts that mobile banking
has the potential to be transformational owing to various facts. First, it uses existing mobile
communications infrastructure which already reaches unbanked persons. Secondly it may be
driven by new players, such as mobile phone industry operators, with different target markets
from traditional banks who are able to harness the power of new distribution networks for cash
transactions.

The Kenyan case offers sufficient evidence to the claim that competition triggers creativity and
innovation. To survive in a competitive market firms must maintain new products. The sustained
presence of mobile products being floated to customers on a consistent basis depicts high
standards of innovativeness. Continuous innovation not only yields new products but rather
promotes efficiently in performance of activities. As a result the price for new services
introduced to the market declines consistently.

A number of studies have been done in Kenya on M-banking and the responses to challenges
encountered in restricted banking hours and accessibility to the banks and other money transfer
institutions. Maina (2001) focused on, perceived quality and value preposition but failed to
study the effectiveness of the M-banking service in the banking industry. Another study done by
Odhiambo (2003) focused on factors that influenced customer satisfaction and services offered
by mobile firms but failed to focus on the effectiveness of such a product/ service. Gitari (2006)
focused on the challenges organization face in meeting consumer expectations but there was no
documented research data available to show peoples response to the new facility of accessing
their money through their mobile hand-sets beyond normal working hours, easily and almost
everywhere. The above study still focused on perceived quality and value proposition but failed
to assess the effectiveness of the mobile banking service in meeting the banking needs of the
customers. A more recent study conducted by Munywoki J.M (2010), focused on customer
perception of M-pesa services provided by small and medium sized businesses. This study only
focused on one product M-pesa. Although extensive research had been carried out to establish
how the banking sector responded to the challenges of the changing environment, no research
had been done on the effectiveness of the entire M-banking service in the Kenyan banking
sector.

The study will seek to explore the effectiveness of mobile banking services in the Kenyan
banking sector and establish the challenges that are encountered in implementing M-banking.
The questions the study will attempt to answer will therefore be: Has mobile banking been
effective in the Kenyan banking sector? What challenges have been encountered in
implementing mobile banking?

1.3 Objectives of the study

This study has two objectives:
(i) To establish the effects of mobile banking in the Kenyan banking sector
(ii) To establish the challenges encountered in implementing mobile banking in Kenya

1.4 Value of the study

This study will be of value to the banks management in helping them to understand the key
drivers, benefits and challenges of mobile banking. This will enable them to make better
decisions on how best to utilize the M-banking service in order to maximize the gains from the
range of services available. The management of the banks will also be able to understand the
impact the mobile phone revolution is having on the banking sector in Kenya hence helping them
to find ways to embrace the technology rather than shy away from it.

For the scholars and researchers the study will provide a base on which future studies can be
conducted on a similar concept to establish the growth of M-banking.

For mobile phone

operators, it provides a platform on which to evaluate future business opportunities in the

banking sector within Kenya. The study will also act as a feedback mechanism on the already
established M-banking services and provide a basis on which to improve on the same.

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
This chapter contains the literature review which begins with the introduction of mobile
commerce which is narrowed down to mobile banking industry. The mobile banking market,
mobile banking in Kenya and the mode of mobile banking operation are also discussed. It looks
at the technology employed by banks in carrying out mobile banking services. The diffusion,
adoption and development of mobile banking are also discussed. It goes further to explain the
advantages of m-banking and the macroeconomic impact of mobile banking in Kenya. This will
serve as a frame work for this research work.

2.2 Introduction to M-Commerce

Mobile commerce (M-Commerce) is an extension of M-Commerce, and these allow consumers to
interact with other one another or businesses in a wireless mode, anytime and in anywhere. The use
of mobile phone for buying and selling of goods and services is regarded as mobile commerce. MCommerce is usually called mobile commerce, which allows customers, to make any kind of
transaction including service enquiry, transferring of money, buying and selling of goods through
internet service on the mobile phone. Mobile commerce has its own drawback, though its slowly,
but definitely, portraying signs of strong recovery (Tiwari & Buse 2007). Mobile commerce has been
used interchangeably, and this is sometimes misused and confused with mobile banking, this is
therefore, important to put more clarity on m-commerce which is a subset of Mobile Business
(Cronin 2004). Mobile business is activities carried out by organisations to sell goods and services
such as those commercial and other processes; human resource management (HRM), customer
relationship management (CRM), procurement and production while M-Commerce involves buying
and services, and other activities which are associated with such transactions in the business segment
and consumer segment. M-Commerce is been adopted just as E-Commerce though it is slower and
the extent of progress are different in all part of the world (Deans 2002). Japan and Europe are taking
the lead because of their decision to establish a single wireless standard (Dean 2002; Coursaries et al
2004).

The word mobile is related to mobile businesses which connote the possibilities of having access to
business activities anywhere and anytime in the world and which is managed by computer mediated
network. The facility makes service availability to independent of users geographically location as
oppose to electronic (Stanoveska-Slabeva 2003). Mobile commerce comprises of Mobile banking,
innovation driven by the banking industry, and others such as mobile entertainment, mobile
marketing and advertising, mobile information services, and mobile ticketing (Tiwari & Buse 2007).
The mobile commerce has its unique features which give it an edge over other form of commercial
transaction; these are instant connectivity, immediacy, localization, pro-active functionality, ubiquity
and simple authentication procedures (Tsalgatidou & Pitoura 2001).

2.3 Mobile banking: M-Commerce in the banking sector

Mobile commerce is a broad term that encompasses all forms of interaction with a consumer through
a mobile device, such as issuing electronic coupons, providing loyalty services, and creating
dedicated websites that a specifically designed to facilitate mobile browsing (Alex 2010). In the
banking industry, services that are finance-related which involves mobile telecommunication
technologies is known as Mobile financial services. These services are therefore categorised into
mobile payment and mobile banking. In regards to this research we will focus on mobile banking.
Mobile Banking is a type of m-commerce service that allows consumers to perform banking services
(i.e. alerts, banking transactions and balance enquiries) with the use of their mobile devices (Corbitt
and Barnes 2003). It is very important to understand what banking business is all about. Banks are
businesses that deal in money (Hammonds 2006:4) therefore banking involves any service given and
received from the bank, people open accounts with banks to save money, other people go to the bank
to borrow money (Sobczak 1997:6).

Mobile banking could be defined as a facility which provides banking services such as balance
enquiry, funds transfer, bill payment, and transaction history via a users mobile phone (Stair &
Reynolds 2008). Kondabagil (2007:24) defines mobile banking as an occurrence, when customers
access a banks networks using cellular phones, pagers, personal digital assistants, or similar devices
through telecommunication wireless networks. Mobile banking (m-banking) could also be defined as
an application of mobile commerce that enables customers to bank virtually at any convenient time
and place (Suoranta, 2003).

Tiwari et al (2006a:5) believes that a cornerstone of m-commerce is built by m-banking; many banks
are taken advantage of this innovation in order to increase customer satisfaction, manage cost,
increase profits and bring positive transformation of payment system in the economy. In 2004,
Finland-based Nordea bank experiences a high growth of 30% from the utilisation of transactionbased mobile financial services (Atkins 2005).
Mobile Banking as the term connotes is banking on the move with the aid of a mobile
telecommunication device (Ciuci 2010) which can be used for a different purpose at anytime and
anywhere. Mobile banking (M-banking) allows customers to receive short message (SMS) through
their phone, wireless application protocol (WAP) and Java enables phone support other banking
activities using GPRS (General Packet Radio Service) such as direct payments confirmation and
funds transfer (Mallat et al 2004). From research 30 per cent of households in the United Kingdom
use their mobile phones to perform banking operations (MMA 2009). Research also shows that,
internet has only a penetration rate of 6 % in a population of 140 million in Nigeria but mobile
technology is close to 50 per cent penetration with prospects for growth (Ciuci 2010). Mobile devices
show a promising way to the future which can reach larger population of customers irrespective of
their location and this can lead to customers loyalty.

2.4 Trends in Mobile Banking

The advent of the Internet has revolutionized the way the financial services industry conducts
business, empowering organizations with new business models and new ways to offer 24 hour
accessibility to their customers. The ability to offer financial transactions online has also created
new players in the financial services industry, such as online banks, online brokers and wealth
managers who offer personalized services, although such players still account for a tiny
percentage of the industry. The banking industry in recent times has been undergoing radical
change and this is taking place in all aspects of the banking sector. One of these new changes in
the banking industry is the information technology system (IT) and is mainly used by banks to
reduce turnaround time and improve business in general. The introduction of mobile technology
and its devices have indeed brought about efficiency in the manner in which commercial and
business activities are been carried out (Tiwari and Buse, 2007; UNCTAD, 2007). Among this
technological development is the introduction of mobile telephony. Mobile telephony serves as a
platform for launching out innovative mobile phone applications and services (UNCTAD, 2007).
9

The use of mobile technologies for commercial purpose has generated the concept of mobile
commerce. Mobile banking is an application of mobile commerce which enables customers to
bank virtually at any convenient time and place (Suoranta, 2003). There has been evidence of
increase in the number of people subscribing for mobile phone in developed and developing
countries (Boadi et al., 2007; UNCTAD, 2007). The fastest growing market in the world now is
the mobile industry (UNCTAD, 2007).

2.5 Utility of Mobile Banking from Banks Perspective

At this stage it would be relevant to understand the usefulness of Mobile Banking from the
banks perspective. It is therefore imperative to understand the business environment in which
banks operate and to identify customer groups that the banks may seek to target via Mobile
Banking.
Intensified Competition in the Banking Sector
Bank products are of immaterial nature sold increasingly with the help of computer networks
spanning across the globe. The global networks provide the customer with world-wide services,
for instance the use of credit cards while abroad. The creation of an EU-wide single domestic
market has led to intensification of competition in the EU in all business fields including in the
banking sector. The ongoing Globalisation has further intensified the competition. Technical
developments coupled with the process of Globalisation, have made it possible for banks to offer
their services in far-flung areas without investing money to build branches and hire additional
staff. This opportunity, of course, is a two-way street: On the one hand, a bank gets access to
new markets. On the other hand it is faced with increased competition on its home turf. To
master this combination of opportunities and challenges banks need apart from business
consolidation and cooperation organic growth. It is therefore necessary to retain the existing
customer base while simultaneously acquiring new, economically prosperous customers. Seen in
conjunction with the price-sensitivity of customers and the resultant low relevance of the brandname banks are compelled to introduce innovative services that potentially attract prospective
customers while retaining others.

Even though the brand-name remains a critical factor on account of the need for trust in banking
business, the globalisation and the technological developments, however, have reduced entry
10

barriers so that the number of available reputed brands has increased significantly; thereby
intensifying the competition (Tiwari & Buse 2007).

Adapting to Requirements of Core Target Groups

Banks, today, are increasingly confronted with technology-savvy customers who are often on the
move. As Wolfgang Klein, Private Customers Director at Postbank, a leading German bank,
puts it: Todays customers want to organise banking transactions while on the move,
irrespective of opening hours. Banks are responding to this development by introducing mobile
services. Core target groups of Mobile Banking are often divided in three categories, youngsters,
young adults and business people.

Mobile Banking as Distribution Channel

Mobile Banking enhances the number of existing channels of distribution that a bank employs to
offer its services. The efficiency of a distribution channel can be measured by its fulfillment of
three major objectives, which are closely related to each other.

Increasing Sales Volume

One of the primary tasks of a distribution channel is to increase the volume of demand for
products at profitable prices. This objective is arrived by increasing operational efficiency so that
those losses are minimized that are caused by delays in catering to customer orders. Further, a
favourable reputation of the firms logistical capacities may help generate additional orders.
Reducing Costs of Distribution
Due to increased competition a distribution channel must organize business processes efficiently
so as to reduce distribution costs. This pressure can be coped with by rationalizing organizational
structures to increase productivity.

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Increasing Customer Satisfaction

Mobile Banking may help increase the customer satisfaction by streamlining of business
processes to increase efficiency, more attention and better consulting for customers due to
automation of routine processes and innovative anywhere, anytime services customized for
individual preferences. The collected data can also be utilised to create customer profiles.
Increased customer satisfaction can help reduce the customer attrition rate

Mobile Banking as Source of Revenue

Mobile Banking can also serve as a source of revenue. Mobile services can be offered on a
premium basis. The price, in this case, should be reasonable enough so that customers are willing
to pay them but at the same time they should be from a financial point of view higher than
the costs incurred by the bank. Additional revenues can be generated through offering
innovative, premium services to existing customers and attracting new customers by offering
innovative services.

Mobile Banking as Image Product

Finally, Mobile Banking can be also used as an image product to gain strategic advantages. A
bank may hope to win or retain a positive image amongst technology-savvy sections of the
society and strengthen the brand-reputation of being innovative and visionary [8]. The image of
being a technology leader can help the bank win customers looking for modern products and
services and at the same time help it retain its own existing base of technology-savvy customers,
some of whom otherwise might have switched to other banks while looking for such a product.
Further, the bank can profit from an early-mover advantage by actively shaping technological
standards that are based on ones own strengths. This is, of course, fraught with a substantial risk
of incurring financial and image losses if the propagated technology fails to establish (Tiwari &
Buse 2007).

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2.6 Mobile Banking Business Models

A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what
business model, if mobile banking is being used to attract low-income populations in often rural
locations, the business model will depend on banking agents, i.e. retail or postal outlets that
process financial transactions on behalf telecoms or banks. The banking agent is an important
part of the mobile banking business model since customer care, service quality, and cash
management will depend on them. Many telecoms will work through their local airtime resellers.
However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc.

Three models have been identified and developed, and they are primarily different from one
another based on who established the relationship (Banks or the Non-Bank/ Telecommunication
Company) of account opening, deposit or withdrawer, borrowing, etc., with the customers. There
are differences in the Bank-led model, Bank Focused model and Non-bank-led model (Porteous,
2006; Anyasi & Otuba 2009).
2.6.1 Bank-led model
This is when customers perform transaction with the use of their phones, which is different, from
the branch-base with the help of a trade partners. This is an alternative to conventional branchbased banking. This method could be created by joint venture between banks and
telecommunication companies. This system allows customers account relationship to be
established and managed by the bank.
2.6.2 Bank-focused model
The bank focus model is when a traditional banks decides to use the low-cost delivery channels,
which is a non-traditional banking system to provide banking services to its customers such as
the use of m-banking facilities, automatic teller machine (ATMs), internet banking, e.tc., The
bank-focus model is additive in nature and is an extension of the conventional branch-based
banking (Porteous 2006).

13

2.6.3 Non bank-led model

The non-bank-led does not get involve unless required to do so when the need arises as a safe
keeper of surplus funds, and this allows the telecommunication company handle all the functions
(Aguirre et al 2008). However, mobile banking services that are focused on low income earners
of the population size which are regularly found in the rural area will need to reply on retail
outlets. A lot of telecommunications agents operate through their airtime resellers while banks
muses bakeries, pharmacies, e.tc which can be found in some countries such as Colombia (ibid.).

2.7 Advantages of mobile banking to providers and consumers

The use of mobile phones has a positive and significant impact on a countrys economic growth,
and its impact may be as twice as large in developing countries as to developed countries (ITU
2005, Salzaman et al 2001). Mobile banking is fast growing and is moving at a fast rate. The fast
development of information technology in the global world has paved way for the development
of this sector. The banks were faced with different challenges as a result of the large increase in
their customer base in the past few decades, and these has brought about many innovative
products and services which could foster the rapid development of the banking sector. And one
of such innovation is the mobile banking which is targeted at three different categories of people
between the ages of 14 & 18 years; secondly the young adult and thirdly, the business people
(Muller-Veerse 2000). Mobile banking has many benefits for both the banks and the customers.
2.7.1 Benefits to banks
The mobile banking is expected to increase customer satisfaction, reduce the cost of distribution,
e.tc, but trust and credibility has been the greatest challenge of mobile banking from their
provider (Oxford business Group 2008; Langendoerfer 2002). And many effort that are been
made to increase customers awareness and confidence in online facilities for banking appears
insufficient (Merry 2005). The higher the number of people using mobile banking, the higher the
money saved. According to Robinson (2000:105) the cost of making electronic transaction is
lower than the cost of making branch transaction. Mobile banking strengthens the relationship
between the banks and the customers because it brings banking service directly to the people
which eventually leads to customers loyalty.
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2.7.2 Benefits for customers

Mobile banking provides more benefits to its users and has been a more secure means of
accessing banking services compared to other forms of online banking (Herzberg 2003). Its
services could be used anywhere and it could be used without a desktop or PC and at a reduced
price, which makes it convenient for users compared to the traditional banking method (ibid).
M-banking usually supports time critical situation that requires prompt response from the
customer due to its immediate feature (Kemper & wolf 2000). It also provides self-service and
digital access which is more cost effective (Ahonen 2002).

2.8 Critical success factors for M-banking

Critical success factors (CSFs) has been defined in various ways, and this depends on the
purpose for which they are been used for. If well understood, critical success factor (CSF)
approach shows an accepted top-down methodology for corporate strategic planning in an
organisation, and has it identifies key success factors, it can show the key relevant information
that is required by top management. When the key success factors are identified and they are
controllable, the management of an organisation should take the necessary step in ameliorate its
potential for success

Mobile banking has a lot of impact it can make on its provider (Banks). These are regarded as
critical success factor and if well studied and implemented it can bring positive impact to the
provider. There are several suggestions in the literature as to what constitute to the critical
success factor of mobile commerce (inclusive of M-banking). According to the findings of
Buellingen and Woerter (2002) from interview expert, they see data security, user-friendliness,
personalization, and transmission rate as concern of people. And also the research survey carried
in UK by Strong and Old (2000) it reveals that convenient and easiness to use internet facilities
at any time and in any way is more paramount and will serve as a motivating factor to customers
to use mobile banking services. On the contrary, Green (2000) believes that user friendliness is a
key factor for consumers and that; high complexity phones and the size of the screen can be a
serious threat to the user.

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It is also argued that psychological issues such as security and privacy can serve as a serious
drawback when compared with technological issues which is believed to have a lesser impact. It
is also argued from a different view, Shuster (2001 cited by Shaw 2006) believes that, pricing
will be a crucial issue to customers and that price must be reasonably adjusted and affordable to
subscribers of mobile users.

2.9 Challenges for a mobile banking solution

Handset operability
There are a large number of different mobile phone devices and it is a big challenge for banks to
offer mobile banking solution on any type of device. Some of these devices support Java ME and
others support SIM Application Toolkit, a WAP browser, or only SMS. Initial interoperability
issues however have been localized, with countries like India using portals like R-World to
enable the limitations of low end java based phones, while focus on areas such as South Africa
have defaulted to the USSD as a basis of communication achievable with any phone.
The desire for interoperability is largely dependent on the banks themselves, where installed
applications (Java based or native) provide better security, are easier to use and allow
development of more complex capabilities similar to those of internet banking while SMS can
provide the basics but becomes difficult to operate with more complex transactions. There is a
myth that there is a challenge of interoperability between mobile banking applications due to
perceived lack of common technology standards for mobile banking. In practice it is too early in
the service lifecycle for interoperability to be addressed within an individual country, as very few
countries have more than one mobile banking service provider. (Tiwari et al, 2007).
Security
Security of financial transactions, being executed from some remote location and transmission of
financial information over the air, are the most complicated challenges that need to be addressed
jointly by mobile application developers, wireless network service providers and the banks' IT
departments. The following aspects need to be addressed to offer a secure infrastructure for
financial transaction over wireless network:
(i) Physical part of the hand-held device. If the bank is offering smart-card based security,
the physical security of the device is more important.
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(ii) Security of any thick-client application running on the device. In case the device is stolen,
the hacker should require at least an ID/Password to access the application.
(iii)Authentication of the device with service provider before initiating a transaction. This
would ensure that unauthorized devices are not connected to perform financial
transactions.
(iv) User ID / Password authentication of banks customer.
(v) Encryption of the data being transmitted over the air.
(vi) Encryption of the data that will be stored in device for later / off-line analysis by the
customer.
One-time passwords (OTPs) are the latest tool used by financial and banking service providers in
the fight against cyber fraud. Instead of relying on traditional memorized passwords, OTPs are
requested by consumers each time they want to perform transactions using the online or mobile
banking interface. When the request is received the password is sent to the consumers phone via
SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.
Because of the concerns made explicit above, it is extremely important that SMS gateway
providers can provide a decent quality of service for banks and financial institutions in regards to
SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for
this industry; it is necessary to give the bank customer delivery guarantees of all messages, as
well as measurements on the speed of delivery, throughput, etc. SLAs give the service
parameters in which a messaging solution is guaranteed to perform (Boyd, C, & Jacob, K, 2007).
Scalability and reliability
Another challenge for the Chief Information Officers (CIOs) and Chief Technical Officers
(CTOs) of the banks is to scale-up the mobile banking infrastructure to handle exponential
growth of the customer base. With mobile banking, the customer may be sitting in any part of the
world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up
and running in a true 24-7 fashion.

17

As customers will find mobile banking more and more useful, their expectations from the
solution will increase. Banks unable to meet the performance and reliability expectations may
lose customer confidence. There are systems such as Mobile Transaction Platform which allow
quick and secure mobile enabling of various banking services. Recently in India there has been a
phenomenal growth in the use of Mobile Banking applications, with leading banks adopting
Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking
operations (Boyd, C, & Jacob, K, 2007).
Application distribution
Due to the nature of the connectivity between bank and its customers, it would be impractical to
expect customers to regularly visit banks or connect to a web site for regular upgrade of their
mobile banking application. It will be expected that the mobile application itself check the
upgrades and updates and download necessary patches (so called "Over the Air" updates).
However, there could be many issues to implement this approach such as upgrade /
synchronization of other dependent components.
Personalization
It would be expected from the mobile application to support personalization such as: Preferred
Language, date /time format, amount format, default transactions, standard beneficiary list and
alerts (Boyd, C, & Jacob, K, 2007).

18

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction
This chapter sets out various stages and phases that will be followed in completing the study. It
involves a blueprint for the collection, measurement and analysis of data. Specifically the
following subsections are included; research design, target population, data collection
instruments and procedures and data analysis.

Methodology is the overall approach which

underpins the research process (Blaxter et al 2006).

3.2 Research Design

Research design refers to the methods used to carry out a research. It is important to highlight the
two main methods when investigating and collecting data - quantitative and qualitative. This
research problem can best be studied through the use of a descriptive survey design. This study
will specifically try to establish the effects of mobile banking and the challenges encountered in
implementing mobile banking in Kenya. A survey will be carried out in all the commercial
banks in Kenya.

3.3 Study Population

The population of this study will consist of all the commercial banks in Kenya. According to
Central Bank of Kenya (CBK 2011), there are 43 licensed commercial banks and 1 mortgage
finance company (see appendix 2 for full list). A census survey study is recommended so as to
cover the entire population of commercial banks in Kenya.

3.4 Data Collection

Primary data will be obtained through self-administered questionnaires with closed and openended questions. The questionnaires will include structured and unstructured questions and will
be administered to the respondents. The closed - ended questions will enable the researcher to
collect quantitative data while open-ended questions will enable the researcher to collect
qualitative data. The respondents targeted will be Heads of department in charge of the mobile
banking section. Only one respondent will be picked from each bank.
19

The questionnaire will be divided into three sections.

Section A will deal with general

information of the bank and respondents; section B will address effects of mobile banking and
section C will address challenges encountered in implementing m-banking.

3.5 Data Analysis

The data collected will be thoroughly examined and checked for completeness. The data will
then be summarized, coded and tabulated. Descriptive statistics such as means, standard
deviation and frequency distribution will be used to analyze the data through the Statistical
Package for Social Sciences (SPSS). Data presentation will be done by the use of pie charts, bar
charts and graphs, percentages and frequency tables. This will ensure that the gathered
information is clearly understood.

20

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26

APPENDICES
APPENDIX 1: QUESTIONNAIRE
SECTION A: GENERAL INFORMATION
1. Name of Bank:
2. Position held at the Bank:
3. Number of years bank has operated in Kenya (Please tick as appropriate)
1 5 years
6 10 years
10 15 years
Over 15 years

4. Number of branches in Kenya

1-5

11-20

6-10

Over 20

5. Ownership of the bank

Local
Foreign
Both local & foreign

27

SECTION B: EFFECTS OF MOBILE BANKING

6. Does the bank offer mobile banking services?
Yes

No

7. If yes, for how long has your bank offered m-banking services?

8. Please indicate in the table below the extent to which the following m-banking services
apply to your bank:(Tick as appropriate)
Key: 5 Very large extent, 4- Large extent, 3- Moderate extent, 2 Low extent, 1 No
extent.
5
Account information service
Mini-statements and checking of account history
Alerts on account activity or passing of set thresholds
Monitoring of term deposits
Access to loan statements
Access to card statements
Mutual funds / equity statements
Insurance policy management
Pension plan management
Status on cheque, stop payment on cheque
Ordering cheque books
Balance checking in the account
Recent transactions
Due date of payment (functionality for stop, change and deleting
of payments)
PIN provision, Change of PIN and reminder over the Internet
Blocking of (lost, stolen) cards

28

Payments, deposits, withdrawals, and transfers

Cash-in, cash-out transactions on an ATM
Domestic and international fund transfers
Micro-payment handling
Mobile recharging
Commercial payment processing
Bill payment processing
Peer to Peer payments
Withdrawal at banking agent
Deposit at banking agent
Cash-in, cash-out transactions on an ATM

9. How do you rate the following effects of m-banking to your bank?

Key: 5 Very large extent, 4- Large extent, 3- Moderate extent, 2 Low extent, 1 No
extent.
Statement

Has increased customer satisfaction

Has reduced the cost of distribution
Has improved trust and credibility
Has reduced transaction costs
Has strengthened the relationship between the bank and the
customers
Has increased revenues
Has reduced the risk of fraud
Has helped to promote and sell the banks products and services
like credit cards, loans etc
Has increased the customer network
Has improved the banks competitiveness

29

SECTION C: CHALLENGES ENCOUNTERED IN IMPLEMENTING M-BANKING

10. To what extent do you agree that the following are challenges the bank has encountered
in implementing m-banking?
Key: 5 Very large extent, 4- Large extent, 3- Moderate extent, 2 Low extent, 1 No
extent.
Statement

Inability to offer mobile banking solution on any type of device

Security of financial transactions
Inability to meet the performance and reliability expectations
Application distribution
Personalization of mobile phones
Lack of consumers awareness of their ability to use their phones
to bank
Finding talented mobile developers for the bank
Dependence on mobile phone operators

11. Kindly list some of the ways in which the bank uses to deal with the challenges
encountered:
.
.
.
.
.
.
.

Thank you for your co-operation.

30

APPENDIX 2: LIST OF BANKS

Commercial Banks
1. African Banking Corporation Bank
2. Bank of Africa
3. Bank of Baroda
4. Bank of India
5. Barclays Bank
6. CFC Stanbic Bank
7. Charterhouse bank (under statutory management)
8. Chase Bank (Kenya)
9. Citibank
10. Commercial Bank of Africa
11. Consolidated Bank of Kenya
12. Cooperative Bank of Kenya
13. Credit Bank
14. Development Bank of Kenya
15. Diamond Trust Bank
16. Dubai Bank Kenya
17. Ecobank
18. Equatorial Commercial Bank
19. Equity Bank
20. Family Bank
21. Fidelity Commercial Bank Limited
22. Fina Bank
23. First Community Bank
24. Giro Commercial Bank
25. Guardian Bank
26. Gulf African Bank
27. Habib Bank
28. Habib Bank AG Zurich
31

29. I&M Bank

30. Imperial Bank Kenya
31. Jamii Bora Bank
32. Kenya Commercial Bank
33. K-Rep Bank
34. Middle East Bank Kenya
35. National Bank of Kenya
36. NIC Bank
37. Oriental Commercial Bank
38. Paramount Universal Bank
39. Prime Bank (Kenya)
40. Standard Chartered Kenya
41. Trans National Bank Kenya
42. United Bank for Africa
43. Victoria Commercial Bank
Mortgage Finance Companies
44. Housing Finance ltd

Source: Central Bank of Kenya - 2011

32