1

EFFECTS OF E-BANKING ON THE FINANCIAL PERFORMANCE OF

BANKS IN KENYA. A CASE STUDY OF COMMERCIAL BANKS IN KAJIADO
COUNTY

KARIUKI IVY NYAMBURA

BCMC01/0332/2020

A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF BUSINESS

AND ECONOMICS IN PARTIAL FULFILMENT FOR THE REQUIREMENTS OF
AWARD OF DEGREE IN BACHELOR OF COMMERCE, FINANCE AT THE
COOPERATIVE UNIVERSITY OF KENYA.

December 2023
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DECLARATION
I hereby declare that this project is out of my own efforts under the supervision of my
Lecturer Dr. Jedidiah Karwitha. I also declare that this project has not been previously
submitted to any university for any award.
DATE: ..................…………………. SIGNATURE: .........................................

I confirm that the work reported in this proposal was carried out by the candidate under my
supervision and has been submitted with our approval as university supervisors.
DATE: ..................…………………. SIGNATURE: .........................................
DR. JEDIDIAH KARWITHA
SCHOOL OF BUSINESS AND ECONOMICS
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DEDICATION
It is my genuine gratefulness that I dedicate this project to my Family, relatives and friends
for their support throughout my learning journey. I also dedicate this project to my course
mates for the great team work that we had throughout our career mentorship.
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ACKNOWLEDGEMENT
I would like to express my special thanks to my Supervisor Dr. Jedidiah Karwitha for her
continued support and guidance throughout my project. I also thank my parents for their
sacrifice in enhancing a smooth flow of my education life. May the Almighty God bless them
abundantly. I cannot thank enough The Cooperative University of Kenya for providing the
necessary facilities for my research.
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TABLE OF CONTENTS
DEDICATION..............................................................................................................3
ACKNOWLEDGEMENT...........................................................................................4
TABLE OF CONTENTS.............................................................................................5
LIST OF FIGURES.....................................................................................................8
ABSTRACT..................................................................................................................9
1.1 Background of the study..................................................................................10
1.2 Problem statement...........................................................................................12
1.3 Study objectives................................................................................................13

1.3.1 General objectives.....................................................................................13

1.3.2 Specific objectives.....................................................................................13

1.4 Research questions...........................................................................................13

1.5 Study Hypothesis..............................................................................................14

1.5.1 Ho: Null Hypothesis...................................................................................14

1.5.2 Ha: Alternative Hypothesis.......................................................................14

1.6 Justification of the study..................................................................................14

1.7 Significance of the study..................................................................................14
1.8 Scope of study...................................................................................................15

1.8.2 Subject coverage............................................................................................15

1.9 Limitations of the study...................................................................................16

1.10 Definition of terms as per the study............................................................16
CHAPTER TWO: LITERATURE REVIEW.........................................................17
2.1 Introduction......................................................................................................17
2.2 E-Banking and Types of E- banking..............................................................17
2.3 Financial performance.....................................................................................19
2.4 Electronic banking and financial performance of banks.............................19
2.5 Kenya Commercial banks...............................................................................22
2.6 Challenges faced in the implementation, Usage and promotion of e-
banking 24

2.6.1 Insecurities in banks.................................................................................24

2.6.2 Power Failure and Communication Link...............................................24
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2.6.3 Reduces employment in the country.......................................................25

2.6.4 High charges on machines........................................................................25
2.6.5 Low public acceptance..............................................................................25
2.6.6 Lack of computer bank up.......................................................................25

2.7 Measurement of Performance for Banks.......................................................26

2.7.1 Capital Adequacy......................................................................................26

2.7.2 Asset Quality.............................................................................................26
2.7.3 Management Quality................................................................................27
2.7.4 Earning Performance...............................................................................27
2.7.5 Liquidity....................................................................................................27
2.7.6 Sensitivity to Market Risk............................................................................28

2.8 Research Gap....................................................................................................28

2.9 Theoretical framework....................................................................................29

2.9.1 Technology acceptance model..................................................................29

2.9.2 Innovation Diffusion Theory (IDT).........................................................29
2.9.3 Planned Behavior Theory........................................................................30

2.10 Conceptual framework................................................................................30

2.11 Chapter summary.........................................................................................32
CHAPTER 3: RESEARCH METHODOLOGY.....................................................33
3.1 Introduction......................................................................................................33
3.2 Research Design and Strategy.........................................................................33

3.2.1 Research Strategy.....................................................................................33

3.2.2 Research design.........................................................................................33

3.3 Research Area...................................................................................................33

3.4 Target population.............................................................................................35

3.4.1 Sample Size................................................................................................35

3.4.2 Sampling Technique.................................................................................36

3.5 Data Collection.................................................................................................36

3.6 Data Measurement...........................................................................................37
3.7 Data Analysis and Presentation......................................................................37
3.8 Validity and Reliability....................................................................................39
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3.9 Pilot study.........................................................................................................40

3.10 Ethical considerations..................................................................................40
3.11 Conclusion.....................................................................................................41
References...................................................................................................................42
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LIST OF FIGURES

Figure 2.5.1Number of banks in kenya....................................................................23

Figure 2.10.1Conceptual framework........................................................................31
Figure 3.3.1Map of Kenya showing Kajiado...........................................................34
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ABSTRACT
This study aimed to analyze the impact of electronic banking on the financial performance of
commercial banks listed in Kenya. The study aimed to determine the impact of mobile
banking, agency banking, ATM banking, and online banking on the financial performance of
commercial banks listed in Kenya. The study utilized a quantitative research design,
specifically employing panel data analysis. The study focused on the specific population of
36 commercial banks listed in Kenya. The extraction of secondary data was conducted from
the CBK banking supervisory reports and the public annual reports of banks. The data was
documented on data collection sheets. Both descriptive and inferential statistics were
employed. The results were displayed through the use of tables accompanied by
corresponding remarks. The analysis revealed a robust positive correlation between mobile
banking, agency banking, ATM banking, online banking, and the financial performance of
commercial banks listed in Kenya. There was a strong and favorable correlation between the
financial performance of commercial banks and m-banking. A robust positive link existed
between the financial success of individual commercial banks and agency banking. A robust
positive link existed between the financial success of individual commercial banks and
agency banking.
A tenuous positive association existed between the financial success of individual
commercial banks and online banking.

Keywords E-banking, Financial Performance, Kenyan Banks, Kenya

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CHAPTER ONE: INTRODUCTION

1.1 Background of the study

Electronic banking services refer to the automated and efficient delivery of both modern and
conventional financial services using electronic and communication means. This
encompasses the range of systems utilized by consumers to gain access to their accounts,
carry out commercial activities, and obtain information via networks, such as the Internet.
These networks can either be privately owned or publicly accessible.

E-banking is a comprehensive phrase that encompasses the complete process of doing

financial transactions without the necessity of physically visiting a financial institution. The
subsequent phrases encompass diverse manifestations of electronic financial services. PC
Banking and Internet Banking are both methods of doing financial transactions using a
personal computer.

Shan (2000) discusses the concepts of Home Banking, Mobile Banking, and Virtual Banking.
Virtual banking enables banks to do all transactions electronically using mobile phones,
emails, and ATMs, without the need for a physical branch. On the other hand, online banking
necessitates a physical branch while providing services through digital platforms. Electronic
banking services have been implemented by multiple banks in Kenya. The prominent banks
in Kenya are National Bank Kenya, Barclays Bank, Standard Chartered Bank, NIC Bank,
CFC Stanbic Bank, and Equity Bank, among others. Electronic banking originated in the
mid-1970s. Nevertheless, the exorbitant expense of Internet access impeded the progress of
electronic banking as a result of limited user adoption. Amidst the dot-com boom of the mid-
to-late 1990s, individuals started to experience a heightened sense of ease when engaging in
online transactions.
The emergence of electronic banking coincided with the advent of the Internet.
Notwithstanding this unavoidable expansion, clients remained wary and reluctant to do
financial transactions online. Shan (2008) states that the primary appeal of electronic banking
lies in its ability to remove the burdensome bureaucratic procedures involved in registering
personal information. This, together with other convenient services, has led to a significant
growth in the banking sector over the past five years. Major national banks, as well as
regional and smaller banks and credit unions, provide electronic banking services sometimes
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referred to as PC banking, home banking, online banking, or internet banking. Those banks
that offer electronic banking services are sometimes called brick to click banks. They can be
differentiated from brick-and-mortar banks, since they have not yet introduced internet
banking. This sets them apart from virtual or online banks, which do not have any physical
branches or tellers at all (Ombati et al., 2011).

The emergence of numerous virtual banks in the banking sector has facilitated customers'
online access to financial services. Online banks are able to provide cheaper or no service
fees and greater interest rates on interest-bearing accounts compared to traditional banks due
to cost savings (Shan, 2006). Online banking offers both benefits and drawbacks. For many
individuals who perceive it as a superior method of banking, this has facilitated their lives,
however for others it may appear as a convoluted and daunting procedure. Online banking
offers several advantages. Firstly, it provides convenience by being available 24 hours a day,
unlike traditional banks that have limited operating hours. Secondly, online banking allows
for faster and more efficient transactions. Many banks now offer advanced tools such as
account merging, stock management rates, exchange rates, and portfolio alerts. Enterprise
software applications that enhance the efficiency of resource management (Vila et al., 2012).
The drawbacks of electronic banking services primarily revolve around security concerns.
Many clients tend to steer clear of e-banking services that lack a personal touch due to
security reasons. According to certain researchers, a portion of banking clients still place
importance on the customized and prompt services provided by their bankers due to a lack of
knowledge: "On average, 30% of banking customers are unaware of whether their bank
offers online services (Villa et al. 2013).

Based on the Digital Literacy Fact Sheet (2015), a significant portion of the population,
especially in Africa, continues to exhibit a high level of computer illiteracy. This is primarily
attributed to the inadequate technology and energy infrastructure, unreliable electricity
supply, insufficient regulation of electronic transactions, and a preference for physical
currency over digital forms of payment.
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1.2 Problem statement

Kinoti (2015) states that the dynamic business environment is characterized by globalization,
personalization and customisation of customer services, technological advancements, and
increased competition. Rono's (2015) investigation revealed that commercial banks were
compelled to innovate in e-banking as a response to these changes. The objective was to gain
a competitive edge by simplifying bank transactions, alleviating congestion caused by
lengthy queues, bringing services closer to customers to attract and retain them, and
ultimately reducing the cost of service delivery while enhancing financial performance.

Ngango et al (2015) found that prior to the implementation of e-banking, bank clients
experienced significant time wastage due to long queues and delays in check payments. This
was caused by representatives from various banks waiting at the clearing house for the
settlement of their financial obligations. The study conducted by Njogu (2014) revealed that
bank managers are experiencing jubilation following the implementation of e-banking, as it
has led to the emergence of fresh market prospects, heightened account sales, expanded
market coverage, and improved operational effectiveness. As stated in the bank supervision
annual report (2015), the implementation of information technology was anticipated to reduce
time, distance, space, and costs, hence increasing the availability of cheap financial services.
In 2015, the number of branches had a 12-unit increase compared to 2012, while the
efficiency score rose from 770 to 972. This indicates a robust positive correlation between the
two variables.

The study conducted by Njogu (2014) revealed that electronic banking enables banks
to transition from traditional channels reliant on human help to digital channels that function
on a self-service basis. This shift reduces operational costs and enhances efficiency and
financial performance. Nevertheless, several prior researchers present conflicting data
regarding e-banking and the financial success of commercial banks, necessitating thorough
investigation on this subject. In their study, Aduda and Kingoo (2012) discovered that there is
a disagreement among academics on the impact of electronic banking adoption on bank
performance. This is due to the requirement of additional investment in skills, which incurs
costs that may temporarily hinder bank performance.

Commercial bank management necessitates thorough study to comprehend all types of

hazards and achieve a harmonious equilibrium between expenses, risks, and the financial
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performance of the bank. No previous studies have produced a definitive assessment on the
correlation between e-banking and the financial performance of commercial banks in Kenya.
Hence, this study aims to bridge the existing void by assessing the impact of electronic
banking on the financial performance of Kenya Commercial Banks.

1.3 Study objectives

1.3.1 General objectives

The main objective of the study is to examine the impact of electronic banking services on
the financial performance of commercial banks in Kenya.

1.3.2 Specific objectives

This study will be guided by the following specific objectives;

1. To identify the extent of E-banking adoption by Kenya commercial banks.

2. To assess the challenges faced in the implementation and promotion of e-banking
services by Kenya Commercial banks.
3. To determine the benefits of E-banking in terms of profitability and operational
efficiency of Kenya Commercial banks.
4. To recommend strategies and best practices to enhance financial performance of
Kenya commercial banks.

1.4 Research questions

This study will be guided by the following research questions:
1. At what extent is E-banking adopted by Kenya Commercial banks?
2. What are the challenges faced in the implementation and promotion of e-banking
services by Kenya Commercial banks?
3. What are the benefits of E-banking in terms of profitability and operational efficiency
of Kenya Commercial banks?
4. What are the strategies and best practices to enhance financial performance through
effective e-banking implementation in Kenya Commercial banks.
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1.5 Study Hypothesis

The study will impact of electronic banking services on the financial performance of
commercial banks in Kenya and will have the following null and alternative hypothesis:

1.5.1 Ho: Null Hypothesis

Electronic banking services have no impact on the financial performance in Kenya.

1.5.2 Ha: Alternative Hypothesis

Electronic banking services has a great impact on the financial performance in Kenya.

1.6 Justification of the study

This study aims to analyze the present state of electronic banking in Kenya and its influence
on the financial performance of Commercial banks in Kenya. Insufficient research has been
conducted to fully understand the effects of electronic banking services on the financial
performance of Kenyan banks. Hence, this study aims to investigate the influence of
electronic banking services on the financial performance of banks by evaluating the effect of
their utilization on profitability and customer satisfaction. Moreover, this study will enhance
the understanding of the influence of e-banking on the overall efficacy of banks. It can
perhaps serve as a definitive document for banks seeking to invest in E-banking in the future.

1.7 Significance of the study

The main objective of the study is to address key cognitive gaps in the e-banking panorama in
Kenya. In addition, the results of the study are expected to be very useful to:
Scholars
The study aims to provide researchers with insights into the many manifestations of
electronic banking services and their influence on the financial performance of banks in
Kenya. They will gain knowledge of the evolution of the e-banking system in Kenya and the
subsequent changes brought about by its adoption. The study will moreover furnish data
regarding the channels employed by various banks to execute e-banking.
Government
The study will provide the government with essential data to help them formulate policies
and also enable them to effectively control their finances and thus be effective regulators.
Banks
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Banks will be able to provide high-quality services to their customers and even encourage
more people and other financial institutions to invest in them. Banking organizations in
Kenya will also have a benchmark to measure their electronic banking services and financial
performance.
Consumers
Consumers will be able find out where banks are lagging behind in adopting electronic
banking services and providing various products and services. The study will also prove
important as it will serve as a reference point for consumers to assess the convenience of
using electronic banking services. Customers will be able to carry out their transactions from
the comfort of their homes or workplace hence saving on time and resources; they will also
gain a better understanding of how to carry out bank services using electronic banking.
Researchers
Researchers will be able to add to their research work about electronic banking and gain a
better understanding on this field. The findings will also be used in future as reference
material.

1.8 Scope of study

1.8.1physical coverage
The research study will specifically examine Kajiado County, Kenya from a
geographical standpoint. The elevated concentration of banks and banking professionals
(including Managers, Accountants, Clerks, and users) in Kajiado County can be attributed to
its status as a fast burgeoning region. In addition, the researcher determines that the region is
conveniently accessible because it is close to their dwelling for the entire course of the
research project. The focus of this study will be on commercial banks.

1.8.2 Subject coverage

The study aims to examine the correlation between E-banking and the financial performance
in the banking sector of Kajiado County, Kenya. It will specifically focus on commercial
banks. This study will offer useful insights into the impact of E-banking on the financial
performance of banks in this specific geographic region.

1.8.3 Variable coverage

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The research aims to demonstrate the correlation between the independent variable of E-
banking, specifically mobile, internet, ATM, and credit/debit card banking, and the dependent
variable of the financial performance of commercial banks. Additionally, it includes the
moderating variable, Efficiency of e-banking system, and Skills on usage of E-banking,
which impact the correlations among these components.

1.9 Limitations of the study

The following are the challenges that the researcher might encounter during the study.
Customer Behavior and Perception: The study might be limited by customer
perceptions and behaviors towards e-banking, which can be subjective and influenced by
various factors such as cultural norms, trust, and education levels.
Hostility of respondents -This may result in withholding information or disclosing
data that could mislead the researcher. To overcome this limitation, the researcher must
clearly define the purpose of the study and the benefits that can be achieved by conducting
the study. The researcher must also guarantee confidentiality to the interviewees
Regulatory Changes: Changes in regulatory policies related to e-banking services in
Kenya could impact the study's findings, especially if new regulations are introduced or
existing ones are modified during the research period.

1.10 Definition of terms as per the study.

E- Banking- refers to the provision of banking services and financial transactions
through electronic channels and the internet. It encompasses a wide range of activities
conducted electronically, including online banking, mobile banking, electronic funds
transfers, and electronic bill payments
Financial performance- Involves assessment and measurement of the cooperative
banks' overall financial health, stability, and efficiency. It involves analyzing various
financial indicators, such as profitability, liquidity, solvency, efficiency ratios, and return on
investment, to evaluate how well the cooperative banks are managing their financial
resources and generating profits.
Virtual bank- financial institution that operates entirely online without traditional
physical branch locations.
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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
This chapter presents the literature review of the study, which offers the reader an
explanation of the theoretical basis for the problem under investigation, various forms of
electronic banking, and the existing research and its relevance to the problem being
addressed. The objective of the literature review is to prevent redundant replication of
information that has already been addressed, whether intentionally or inadvertently. This
literature review examines prior key activities that were conducted to solve challenges in
electronic banking. The information was acquired from previous sources, including
magazines, newspapers, journals, and the internet. The discussion revolved around
conducting a thorough study and identifying the holes in the research.

2.2 E-Banking and Types of E- banking

E-banking is a platform via which banking services are provided. For many years, banks have
utilized electronic channels to engage in communication and conduct business with corporate
customers, both domestically and internationally. In the late 1990s, banks started utilizing
electronic channels, such as the Internet and the World Wide Web (WWW), to receive
instructions and provide products and services to their customers. The banking method
described is commonly known as e-banking or Internet banking. However, the offerings and
features given by banks through electronic channels might differ significantly in terms of
content, capability, and complexity. E-banking refers to the automated provision of both new
and classic banking goods and services to customers using electronic, interactive
communication channels.

E-banking encompasses the technological systems that allow customers of financial

institutions, whether they are people or corporations, to securely access their accounts,
conduct financial transactions, and gather information about various financial goods and
services. These systems can be accessed by either a public or private network, such as the
Internet or mobile phone. Customers utilize e-banking services through various intelligent
electronic devices, including personal computers (PCs), personal digital assistants (PDAs),
automated teller machines (ATMs), kiosks, or Touch Tone 6 telephones.
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Electronic banking encompasses mobile banking, online banking, telephone banking, and
electronic cards. Mobile banking refers to the utilization of a mobile phone for the purpose of
conducting financial transactions. It facilitates peer-to-peer transfers with instant fund
availability for the recipient. Mobile payments utilize the card infrastructure to transmit
payment instructions and employ secure Short Message Service (SMS) communications to
confirm receipt to the recipient. Mobile banking is designed for conducting low-value
transactions with an emphasis on completing them quickly. The services provided by this
product encompass account inquiry, funds transfer, phone recharge, password modification,
and bill payment, which are available from a limited number of institutions.

Internet banking refers to the process of doing various banking activities, such as checking
account balances, printing account statements, transferring funds, and making payments for
goods and services, through the internet (World Wide Web) using electronic devices like
computers, without the need to physically visit a bank branch. Internet banking considerably
facilitates e-commerce, mostly for the purpose of making payments. Internet banking utilizes
the electronic card system to carry out payment instructions and settle transactions made over
the internet between merchants and customers. Presently, the most prevalent types of internet
payments involve paying consumer bills and purchasing air tickets through merchant
websites (Littler, 2006).

Telephone banking refers to the banking services that customers of a financial institution can
access by using a telephone line to connect to the institution's computer center. Telephone
banking services encompass account balance inquiries, cash transfers, PIN changes, as well
as phone recharges and bill payments (James, 2009).

An electronic card refers to a tangible plastic card that serves as a distinctive identifier for the
holder and enables them to conduct financial transactions online. Automated Teller Machines
(ATMs) and Point-of-Sale (PoS) terminals are utilized to authenticate payments to the
merchant or seller (James, 2009). The many categories of electronic cards encompass debit
and credit cards; reloadable cards necessitate a visit to the bank for adding funds. Debit cards
are associated with domestic bank accounts and provide instant verification of payment.
Credit cards serve the purpose of connecting a consumer to a line of credit and provide access
to both local and international networks. They are generally accepted in the majority of 12
nations. The fundamental framework and operating regulations are commonly supplied by
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internationally recognized systems (such as Visa and Mastercard), along with domestic
networks (James, 2009).

2.3 Financial performance

Gichungu's (2015) study revealed that financial performance measures the extent to which a
company creates income through the utilization of its assets within a specific timeframe.
Financial performance measures should be aggregated. According to Ngango et al's (2015)
research, profitability is identified as a significant indicator of financial performance. ROA is
a metric that indicates the profitability level. Another ratio commonly employed is return on
equity (ROE), which measures the profitability of a company by comparing the profit
generated to the amount of capital invested by shareholders. Additionally, the number of
ATMs is also seen as a relevant metric (Asia, 2015).

Mwangi (2014) utilized profitability indicators to evaluate a bank's financial performance and
determine if electronic banking results in enhanced efficiency, effectiveness in terms of cost
reduction, and time savings. Profitability ratios were employed to demonstrate the
effectiveness of management, specifically in terms of return on assets. The ratio in question is
a metric that quantifies the efficiency with which a company utilizes its assets by comparing
its net income to its total assets.

2.4 Electronic banking and financial performance of banks

Maiyo's (2013) investigation revealed that the use of electronic banking led to cost reduction
through a decrease in the number of bank employees and an improvement in profitability.
Currently, banks function on a self-service model rather than relying on traditional methods
that involve human support, such as tellers or corporate management (Pourkiael and
Ardestani, 2014). Electronic payments have led to lower costs associated with processing
cheques, as well as decreased expenses for print and postal distribution due to the online
presentation of bank statements. Additionally, there is less need for manual data entry since
customers may complete most of their transactions online (Njuguna, 2012).

Isack (2014) states that digital channels are promoting the adoption of home banking,
eliminating the necessity of physically visiting a bank branch. The available channels
encompass automated teller machines, mobile banking, credit cards, smart cards, and online
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banking. Digital banking provides round-the-clock assistance to bank customers, saving time
by offering service at any time and location. It is convenient and environmentally friendly
since it eliminates the need for physical visits to the bank. Enhanced customer satisfaction
has resulted in an expanded market presence and the emergence of fresh market prospects,
leading to a rise in bank revenue (Njogu, 2014).

Kigen (2011) conducted a study on the effects of mobile banking on transaction costs in
microfinance institutions. The study utilized original data and employed an experimental
research approach. The study collected samples from 15 microfinance institutions and found
that the volume of transactions had increased after the implementation of mobile banking.
However, the study also determined that the transaction costs had not changed. Therefore, the
institutions need to perform additional business processes in order to reduce the transaction
costs associated with mobile banking. The study, however, solely examined transaction costs
in the context of mobile banking, specifically focusing on microfinance organizations. The
study specifically examined the performance of Co-operative Bank, which served as a
representation of commercial banks in Kenya. It comprehensively assessed all elements of
mobile banking.

The research conducted by Aduda & Kingoo (2012) sought to establish a correlation between
financial performance and various forms of electronic banking in commercial banks. The
researchers obtained secondary data and used descriptive and inferential statistics to find a
significant link. The implementation of convenient methods such as ATMs, mobile banking,
and debit cards has facilitated smoother service transactions, leading to enhanced
performance for commercial banks. This current research diverges from the aforementioned
study by exclusively concentrating on a singular e-banking channel, namely mobile banking.
The primary objective of the present study was to assess the efficacy of mobile banking by
examining the performance of a single representative sample, namely the Co-operative Bank
of Kenya.

Mutua (2013) conducted a study that specifically examined the novel products related to
mobile banking, the expenses involved with implementing and maintaining mobile services,
and the dangers and concerns regarding the financial integrity of mobile banking. The study
utilized primary data from all banks, therefore obviating the need for sampling. The study
determined that the introduction of new mobile banking solutions had a beneficial impact on
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performance. Additionally, the study determined that payments and transfer services had an
impact on the profitability and generation of shareholder wealth inside their respective
institutions.

Kathuo et al. (2015) employed a descriptive research strategy to gather data from every
commercial bank. The study's findings indicate that banks who implemented M-banking
services had an expansion in their client base and enhanced efficiency, leading to a notable
improvement in their financial performance. The present study was grounded on the idea of
profit maximization and specifically examined profitability as a metric for assessing
performance. The independent variable utilized was pre-tax profit. The study employed a
quantitative research approach and solely concentrated on quantitative measures of mobile
banking.

In a parallel study, Abong'o (2016) gathered data from a sample of 10 banks to represent the
entire banking sector. The study utilized primary data and employed a descriptive research
approach, along with doing a regression analysis. The study confirmed that mobile banking
serves as a favorable platform for money transactions. The study primarily focused on mobile
banking as a means of transaction, with a particular emphasis on the extent to which mobile
banking was utilized as a secure storage medium. The previous study focused on examining
the many functions performed by mobile banking as a means of accessing services offered by
commercial banks, but the current research aims to analyze its influence on performance by
conducting a case study on a specific bank.

Too et al. (2016) focused their investigation specifically on commercial banks in Kapsabet
town in order to examine the effects of mobile banking. Their study utilized original data and
employed a descriptive research methodology. Data encompassing both descriptive and
inferential statistics was gathered. The study's findings indicate that mobile banking has
enhanced convenience and facilitated easier access to loans by reducing lending limitations.
Additionally, it has streamlined funds transfer and bill payments. Their study differed from
the current study in that it solely examined the measurement of specific aspects of mobile
banking services, such as loans, withdrawals, savings, and funds transfer, and their impact on
the financial performance of the bank. However, it did not specifically concentrate on
assessing the financial performance of commercial banks using commonly used indicators
such as profitability, which is the main focus of this study.
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In Nigeria, Bagudu et al. (2017) did a study examining the impact of mobile banking on the
performance of several commercial banks. This study involved the selection of 22
commercial banks, and descriptive statistics were employed to show and interpret the data,
utilizing basic graphical charts. The research study employed primary data to identify
pertinent information and examine the correlation. The study encountered a significant
obstacle due to its very low response rate, which consequently hindered its ability to
definitively prove the impact of mobile banking. Moreover, the study primarily examined
respondents' opinion of mobile banking rather than its actual performance. The primary
objective of the present study was to utilize pre-existing data and place less emphasis on
individuals' views and perceptions towards mobile banking. Instead, the study aimed to
examine concrete performance indicators, specifically focusing on profitability.

Gasirabo (2018) conducted a study in Tanzania to evaluate the happiness of clients using
mobile banking services. The study specifically focused on customers of ACB bank in Dare
Salaam. Data was acquired by employing the random sampling approach from a sample of 50
bank clients. The survey determined that customers' happiness with mobile banking was very
impactful, despite encountering several hurdles. However, this study solely evaluated
customer satisfaction, but the objective of this research was to comprehensively examine all
facets of performance, rather than solely focusing on customer satisfaction.

2.5 Kenya Commercial banks

As of 2022, 39 commercial banks had operations in Kenya. Among the financial institutions
with permission to operate in the country, the majority were local private banks (20). The
country had other 17 foreign institutions and two local public banks as of the same year.
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Figure 2.5.1Number of banks in kenya

The level of financial inclusion in Kenya has consistently increased, with 82.9% of the adult
population having the ability to utilize formal financial services. The predominant factor
behind this trend is the process of converting information into a digital format, which has led
to the increased use of Mobile Financial Services (MFS) for transferring money and
providing loans as the preferred means of accessing financial services. The Central Bank
Annual Report 2019/2020 reveals that there was a significant increase in mobile phone
banking transactions following the start of the pandemic, with 67.0% of transactions being
completed through mobile phones. This is in contrast to the pre-pandemic period, where only
55.0% of transactions were carried out using mobile phones. Although the number of
commercial banks in Kenya has decreased to 38, down from 43 institutions five years ago.
The current ratio of banks to every 10 million people in Kenya is 7.1x, which is a decrease
from 9.0x five years ago. This indicates an ongoing consolidation of the banking industry.
Nevertheless, although the ratio has shown improvement, Kenya still maintains an excessive
number of banks in relation to its population, resulting in an overbanked situation.
 24

2.6 Challenges faced in the implementation, Usage and promotion of e-banking

The establishment of an effective monetary transfer system is linked to numerous elements.
The issues at hand are primarily related to infrastructure, including the inadequate provision
of stable electricity and reliable communication networks, particularly in developing nations.
In this scenario, it necessitates the provision of a reliable and effective power supply and
telecommunication system by the government or organizations. The lack of competent
managers and necessary tools on end users and client systems is a significant issue. Efforts
should be made to provide the required infrastructure and skilled workforce. Another
problem is the excessive amount of cash in the economy. To address this, the government
should enact legislation that promotes the use of electronic payments over cash. Additionally,
the e-payment terminals (ATMs) incur significant fees or expenses, therefore necessitating
the establishment of standardized rates for e-payment services by banking legislation. In
order to combat fraud, banks should ensure the deployment of sufficient security measures.
This includes the installation of surveillance cameras in every ATM machine to verify the
identity of account operators. Additionally, banks should hire skilled computer experts to
detect and prevent frauds perpetrated by computer hackers. The absence of government
assistance in enhancing e-banking necessitates the participation of central banks in public
awareness campaigns and the resolution of infrastructure obstacles by the appropriate
government authorities.

2.6.1 Insecurities in banks

The majority of electronic devices currently lack sufficient security measures, which
facilitates the ability of fraudulent individuals to engage in their illicit operations without
detection. Owing to the lack of security measures, banks are unable to prevent, halt, or
control any fraudulent activity. Computer hackers exploit the system to illicitly obtain data or
information by circumventing security protocols (Hodagho, 1996).

2.6.2 Power Failure and Communication Link

The continuous occurrence of power outages causes weaknesses in various infrastructures,

including ATMs and computers. This, in turn, hampers the speed of electronic transactions.
Additionally, the failure of Nitel lines, typically caused by spikes and surges resulting from
inconsistent power supply, further contributes to the problem (Akinuli, 1999).
 25

2.6.3 Reduces employment in the country

The implementation of electronic banking in the country has resulted in a decrease in

employment opportunities. Many tasks that were formerly performed by humans are now
being carried out by machines, leading to a lower employment rate and a higher rate of
unemployment in the country (Oleka, 2009).

2.6.4 High charges on machines

The rate of commission or charges imposed by banks is too high thereby discouraging
customers from using the electronic machine for exchange of transactions example of such
charges are charged on withdraw ATMs and online transfer from one bank branch to another
(James, 2009).

2.6.5 Low public acceptance

Consumers and the general public does not trust the machine since dishonest people still use
it to commit fraud and banks continue to utilize it to steal money from clients' accounts.
Some customers have complained that occasionally, when they attempt to withdraw money
from their ATM, the machine will seize their card and deduct an amount from their account.
While this issue is being investigated, the customer may become discouraged as the problem
may take longer to resolve or may not be resolved at all.

2.6.6 Lack of computer bank up

As a result of lack of computer backup when the bank system is corrupt there will be a loss
of information about a customer, and this may lead to misappropriation of customers account,
therefore the bank should have a manual backup (ledger) containing all data about the
customers (Akinuli, 1999).
 26

2.7 Measurement of Performance for Banks

The criteria for evaluating financial performance include capital adequacy, assets quality,
management quality, earnings, and liquidity (CAMEL) and have been suggested by the Basle
Committee on Banking Supervision of the Bank of International Settlements (BIS) (ADB
2002). Market risk (S), the sixth component, was introduced to CAMEL in 1997 (Gilbert,
Meyer, and Vaughan 2000). A popular technique for assessing the soundness of financial
institutions, particularly commercial banks, is the CAMELS framework. The American
banks' regulating bodies created this arrangement. This system is utilized by the Federal
Reserve Bank, the Federal Deposit Insurance Corporation, and the Comptroller of the
Currency (McNally 1996). This system is being used by monetary authorities in the majority
of nations to assess the health of individual financial institutions. The CAMELS framework
system examines a financial institution's profitability, liquidity, sensitivity to market risk,
asset quality, capital sufficiency, and managerial soundness (Hilbers, Krueger, and Moretti
2000).

2.7.1 Capital Adequacy

In the end, capital sufficiency dictates how effectively commercial banks shock their balance
sheets. As a result, by giving the institution's assets a risk weight, it monitors capital
adequacy measures that account for the most significant financial risks, including interest
rate, foreign exchange, and credit risks. The leverage ratio is one way to assess a bank's level
of capital. This represents the proportion of the bank's capital book value to its asset book
value. The greater ratio indicates a higher degree of capital sufficiency. The leverage ratio
that was mentioned in the previous section is a straightforward capital to assets ratio. Put
otherwise, assets are not adjusted for risk. The capital ratio to risk-adjusted assets of
commercial banks was mandated by the Basel Accord of 1993. This agreement states that
capital must be at least 4% of the commercial banks' risk-weighted assets.

2.7.2 Asset Quality

Among the things that influence a commercial bank's specific health is its credit risk. A
commercial bank's credit risk is determined by the caliber of the assets it possesses. The
degree of risk exposure, patterns in non-performing loans, and the financial stability and
success of bank clients—particularly those in the corporate sector—all influence the quality
of assets that a commercial bank holds. Numerous metrics are available to us to assess the
 27

caliber of assets that commercial banks possess. To evaluate the quality of a commercial
bank's assets, ADB recommends the following metrics: loan concentration by industry,
region, borrower, and portfolio quality; related party policies and exposure on outstanding
loans; loan approval process, check and balance of loans; loan loss provision ratio; portfolio
in arrears; loan loss ratio; and reserve ratio (ADB 2002).

2.7.3 Management Quality

The success of banks is largely dependent on sound management, which is hard to quantify.
It is essentially an institutionally specific qualitative element. That being said, a number of
indicators taken together can be used to determine the soundness of management. The cost
per loan, average loan size, earnings per employee, expenses ratio, and cost per unit of money
lent can all be used as indicators of how well management is doing its job. The cost per unit
of money lent is suggested by ADB as a surrogate for management caliber. However, this is
not a reliable measure of management effectiveness. Since published financial statements and
annual reports do not include information on the 15 percent of the total loan mobilized for a
given financial year.

2.7.4 Earning Performance

Earning capacity or profitability keeps up the sound health of a commercial bank. Chronically
unprofitable commercial bank risks insolvency on one hand and on the others, unusually high
profitability can reflect excessive risk taking of a commercial bank. There are different
indicators of profitability. Return on assets, return on equity, interest-spread ratio, earning-
spread ratio, gross margin. Commercial Banks operating profit margin and net profit margin
are commonly used profitability indicators.

2.7.5 Liquidity

Financial institutions' solvency is at danger from liquidity risk. In the context of commercial
banks, two types of liquidity risk emerge: the first occurs when depositors attempt to take
their money out, and the second occurs when commitment holders wish to exercise the rights
indicated by the commitments that are recorded off the balance sheet. To cover their deposit
liabilities, commercial banks must either sell their assets at fire sale prices or borrow extra
funds. If the proceeds from the asset sale are insufficient to cover the withdrawals of
 28

liabilities, they become insolvent. The second kind of liquidity risk occurs when there are
insufficient cash to meet the demand for unforeseen loans. Commercial banks have three
options for raising money: selling off other assets at distressed prices, borrowing more money
from the money markets, and depleting their cash holdings. The financial performance of
commercial banks is negatively impacted by both liability side liquidity risk (first type risk)
and asset side liquidity risk (second type risk). However, keeping a strong liquidity position
to reduce these risks has a negative impact on FIs' profitability as well. Almost no return is
received on highly liquid assets. To preserve their sound health, financial institutions must
therefore weigh the trade-off between profitability and liquidity position. By examining the
sources and applications of liquidity, the exposure of a commercial bank to liquidity can be
calculated. This method calculates total net liquidity by subtracting total sources of liquidity
from total uses of liquidity. Furthermore, a commercial bank's liquidity condition is assessed
using various liquidity exposure ratios, including loans to deposits, core deposit to total
assets, borrowed funds to total assets, and commitments 16 to lend to total assets (Saunders
and Cornett 2004).

2.7.6 Sensitivity to Market Risk

Commercial banks are becoming more and more involved in a variety of activities, including
buying and lending money, exchanging currencies, and liquidating assets pledged in
exchange for securities. Like interest rate risk, foreign exchange rate risk, and commodity and
financial asset price risk, all of these are susceptible to market risk. A commercial bank's
health is more vulnerable to market risk than less vulnerable banks'. The indications of
sensitivity to market risk are foreign exchange risk, interest rate risk, equities price risk, and
commodity price risk.

2.8 Research Gap

The impact of E-banking on financial performance has been extensively done in and outside
Kenya. However, little has been done in commercial banks in Kajiado County. The research
will seek to address this geographical research gap.

Many past scholars have studied the relationship of E-banking on financial performance in
respect to profits as the main indicator of financial performance. However, the CAMEL
model of has other five indicators of financial performance; Capital adequacy, Assets quality,
 29

Management quality and Sensitivity to market risk. The research will bridge this gap and add
to the already established relationship between E-banking and financial performance.

2.9 Theoretical framework

The project will be anchored on the following theories; Technology acceptance model,
Innovation Diffusion Theory and the Planned Behavior Theory

2.9.1 Technology acceptance model

The technology acceptance model (TAM) was employed by Davis, Bagozzi, and Warshaw
(1989) in their study to explain how people come to use and embrace technology. The
perceived utility (PU) and perceived ease of use (PEOU) of technology have an impact on
consumers' decisions about when and how to utilize it. According to Davis et al. (1989),
perceived usefulness is the degree to which one anticipates that using better technology will
lead to an improvement in job performance. Perceived ease of use, according to Ezzi (2014),
is the degree to which utilizing a specific method will liberate one from 12 effort. In their
research, Davis et al. (1989) found that an information system that is significantly simpler to
use has a greater potential to positively affect attitudes and intentions to utilize it to improve
performance. The attitude toward accepting an information system is influenced by perceived
usefulness, which is also influenced by simplicity of use. Even though user-friendliness
influences acceptance and adoption of information systems, it might not fully account for
why customers choose to utilize internet banking.

2.9.2 Innovation Diffusion Theory (IDT)

Rogers (1983) found that uncertainty reduction behavior controls the spread of technology.
The theory is helpful to commercial banks because it enables them to overcome adoption
barriers related to electronic banking by obtaining data from clients and staff. According to
Taylor (1995), technology dissemination is determined by relative advantage. Using this idea,
commercial banks can determine whether or not consumers' activities align with the adoption
of electronic banking. This is due to the fact that they can conduct financial transactions
without having to go to the bank's physical location at any time or place. By teaching the
public how to use electronic banking, complexity can be overcome.
 30

2.9.3 Planned Behavior Theory

Ajzen (1983) developed the Theory of Planned Behavior (TPB), which was used to forecast
behavior in people. According to the notion, a person's behavior is determined by their
purpose to engage in an activity (Ajzen, 1991). If someone plans to utilize electronic banking,
their attitude toward the results of using it will determine how much they prefer or dislike
using it. Another element that could influence people's intention to use electronic banking is
subjective norm.

Subjective norms are people's opinions about whether or not significant others find using
electronic banking acceptable. It has to do with the individual's perception of what significant
others would think about whether or not they should use electronic banking. The possibility
that different things may happen that would either encourage or discourage using electronic
banking is known as perceived behavioral control. This includes prior experience as well as
anticipated barriers and difficulties. Teo (2000) used (TPB) and found that the banking
industry has been using electronic banking more frequently due to its advantages. More assets
should be employed, according to earlier research on (TPB), in order to boost predictability.

2.10 Conceptual framework

The goal of the study is to show how the financial performance of commercial banks and the
independent variable, e-banking, which includes credit/debit card, internet, ATM, and mobile
banking, are related. It also includes the moderating variables, which affect how these
elements relate to one another: the efficiency of the e-banking system and the proficiency
with e-banking. This is illustrated in the figure below.
 31

Independent
variable: E-Banking

Mobile Banking
 Number of M-banking users
 Number of loans through M-banking
 Number transactions of money transfer
and payment of bills on M-banking
 Investment on M-banking

Financial performance
(CAMEL)
Atm Banking  Capital adequacy
 Number of ATM users and ATMs
installed  Assets quality
 Number transactions of money transfer  Management quality
and payment of bills on ATM  Earnings and liquidity
 Investment on ATM banking
 Sensitivity to market

risk

Credit/Debit Card Banking

 Number of Credit/debit card users
 Number transactions of money transfer
and payment of bills on M-banking
 Investment on M-banking

Moderating variables
 Efficiency of e-banking system
 Skills on usage of E-banking
Internet Banking
 Number of internet banking transactions
 Number internet banking users
 Value of fees and commission from
internet banking

Figure 2.10.2Conceptual framework

 32

2.11 Chapter summary

This chapter reviewed literature on the effects of internet banking on performance of
commercial banks. The chapter reviewed literature on the effect of mobile banking on
performance of commercial banks followed by the literature on the effect of internet
banking on the performance of commercial banks and lastly the literature on the effect
of online security banking on performance of commercial bank. Chapter three presents
the research methodology that the study adopted in addressing the research problem.
 33

CHAPTER 3: RESEARCH METHODOLOGY

3.1 Introduction
This chapter discusses the research design and methodology used in acquiring the necessary
information to achieve the research objectives. It specifically presents the research design,
strategy, describes research area and population, presents sampling techniques in terms of
sample size and selection, validity and reliability of the research, data collection methods and
data analysis methods and the ethical considerations that will be applied while collecting the
data.

3.2 Research Design and Strategy

3.2.1 Research Strategy

To address the research questions and problems more thoroughly, this study will use a mixed-
methods approach, integrating qualitative and quantitative techniques (Kaur et al., 2019).
This strategy will enable researchers to capitalize on the strengths of both qualitative and
quantitative methodologies, improving the study's overall validity and dependability.
Methods including focus groups, interviews, and observations will be used to gather
qualitative data. Surveys and experiments will be used to get quantitative data.

3.2.2 Research design

To find out how much E-banking is used in Kajiado County, a descriptive cross-sectional
design (survey design) will be employed (Wang & Cheng, 2020). This study aims to gather
information from a range of people by using questionnaires. Surveys and observation will be
used to get further data. We'll gather both qualitative and quantitative data. objective is to
shed light on the respective contributions of different E-banking to the financial performance
of commercial banks through statistical analysis. The various E-banking systems in Kajiado
County's commercial banks will be evaluated for functionality using an experimental study
design (Ledyard, 2020). Among the various characteristics that the trials will determine are e-
banking's cost, efficiency, and speed.
 34

3.3 Research Area

The research will be conducted in Kajiado county. The location of Kajiado County in Kenya
is presented in Plate 3.1. This study area has been chosen due to its nearness to the researcher
by the time the research will be conducted. Additionally, many commercial banks have been
established in its towns such as Karen and Ngong.

KAJIADO COUNTY

COUNTY
Figure 3.3.3Map of Kenya showing Kajiado
 35

3.4 Target population

The term "population" is used to describe the overall number of people or items whose traits
are being studied (Asiamah et al., 2017). The population for experimental design will be
drawn from commercial banks in Kajiado county. Professionals who operate in those banks
in the study area will be the target population for survey design. They include managers, ICT
personnel, accountants, clerks as well as the customers associated with the banks.

3.4.1 Sample Size

Researchers use sampling criteria to choose a subset of a population that is statistically

representative so that they may extrapolate findings to the whole. Hoyle and Gottfredson.
(2015) posits that in order to guarantee the research's efficiency, reliability,
representativeness, and adaptability, the sample size should be optimal. The research will use
a 95% confidence level and an acceptance error range of ± 5% for determining the sample
size. Using Nachimias's (1996) suggested formula, we determine the sample size for a target
population of 70 as follows (Lakens, 2022):
Z ² pqN
n= 2
e ( N−1 ) + Z ² pq
Where:
N=Population size
n=Sample size
p=Sample population estimated to have the characteristics being measured. Assume a
95% confidence level of the target population.
Q= (1-p)
ℯ =Acceptance error, ℯ =0.05, since the estimated should be 5 % of the true value
Z= The standard normal deviate at the required confidence level i.e. 1.96

Therefore;

2
1.9 6 ∗0.95∗( 1−0.95 )∗70
n=
0.05 ∗( 70−1 )+ 1.96 2∗0.95∗(1−0.95)
2
 36

12.77332
n=
0.354976
n=35.98
n=36
From the target population of 70, the sample size resulted to 36 respondents after factoring
Nachimias (1996) formula. Therefore, several banks from all over the county will be selected
to be the target sample in the study.

3.4.2 Sampling Technique

From the target population of 70 random sampling will be used to reach the sample size of
36. All the names of the 70 banks (parent population) in Kajiado county will be written down
on separate piece of papers and put in one pot. An infant will choose 36 papers which will be
the sample size and so the population of the study. Random sampling is the best choice for
this project because it will ensure that each bank will have an equal chance to be picked and
thus eliminate biasness.

3.5 Data Collection

The study's primary data will be acquired by the administration of a questionnaire,
interviews, and experiments. This is because questionnaires make it easy to create relevant
questions that may be posed to responders. Respondents can thus select whether to respond to
"open-ended" questions in the last section or "closed-ended questions" in the main body.
Because closed-ended questions elicit responses that are easily evaluated and subject to
statistical analysis, the research will employ them (Scotto, 2015). Since open-ended questions
allow respondents to think critically and imaginatively without restricting them to
preconceived answers, they will also be used (Wilkinson & Dokter, 2023). Questionnaires
will be distributed to the several banks that make up the sampled population. Following
completion of the surveys, respondents will be required to scan and submit them to the
researcher. Three weeks later, a manual follow-up will take place. Questionnaires were the
most suitable method of data collection because the goal of this study is to collect descriptive
data (Lamatokan, 2018). A vast population may be served with less resources, personnel, and
time. Furthermore, the anonymity of the responders may have encouraged more direct
responses. Respondents' confidentiality will be ensured since they won't be required to
 37

provide their identities. The time allotted to respondents allows them to finish the
questionnaire accurately, reducing the potential for bias resulting from interview features.
Experiments will be conducted as a backup strategy to gather data. With the consumers'
permission, these tests will be conducted practically utilizing their E-banking systems from
various banks.

3.6 Data Measurement

The questionnaires that will be utilized will utilize the Likert Scale, which has response
alternatives that span from "strongly disagree" to "strongly agree." In 2017 Batterton and
Hale. This methodology will be utilized to craft closed-ended inquiries. According to
Taherdoost (2019), the Likert scale is frequently employed in surveys to gauge participants'
inclinations or degrees of agreement with particular assertions. Taherdoost claims that the
broad applicability and readability of a Likert Scale as a data collection instrument are two of
its main benefits. Respondents are free to provide exploratory answers without being limited
by predetermined answers thanks to the open-ended questions that are included in the
conclusion. A wealth of qualitative data was produced by the use of open-ended questions,
which allowed the researcher to obtain a wide range of insights into the topic under
investigation. The conventional building codes and project drawings' specifications will be
used to compare the data from the experiments. We'll measure the deviation in percentage
terms.

3.7 Data Analysis and Presentation

With the use of Python software, the qualitative data gathered through surveys and interviews
will be examined. Cross-validation will be used to determine whether the data collected
through surveys has any errors or omissions. To give an overview and description of the main
features of the dataset, the data will be subjected to descriptive analysis. The statistical
measures listed above comprise measures of variability, which include variance, kurtosis,
skewness, and standard deviation, as well as assessments of central tendency, which include
the mean and mode (Borradaile & Borradaile, 2003).

To analyze the quantitative data from the experiment, the statistical program for the social
sciences (SPSS, Version 28) will be utilized. To assess the E-banking functionality, the
 38

experiment data will be totaled and analyzed using figures and tables to identify various
specimen sections.

The quantitative data will be examined using inferential statistics, diagnostic tests, and
descriptive statistics. Calculating percentages, the standard deviation, and the mean are all
part of quantitative analysis. A multi-collinearity test, a normality test, and a sample
adequacy test were among the diagnostic tests. The associations between the variables will be
ascertained by inferential statistics using Pearson's correlation coefficients and multiple
regression analysis (Cohen et al., 2013). The research will use Pearson's correlation
coefficients to illustrate the relationship between the research variables in order to test for
multi-collinearity in the data. If there is a strong correlation between the independent
variables, multicollinearity exists. To determine whether the data we utilized for the sample
originated from a normally distributed population, we will perform a normality test using the
Shapiro-Wilk test. The histogram image, which shows the distribution of the data, will further
validate the Shapiro-Wil test results.

The use of Multiple Regression analysis will be employed to examine the impact of several
variables on a particular response variable. A multivariate regression model will be used to
establish a relationship between the independent and dependent variables, as described
below:
𝑌 = 𝛼 + 𝛽2𝑋1 + 𝛽2𝑋2 + 𝛽3𝑋3+ 𝛽4𝑋4 + 𝑒
Where:
Y = Financial performance of banks
α = Constant Term
β1, β2, and β3= Regression coefficients of the independent variables (ATM banking,
Mobile banking, Internet banking and Credit/debit card banking respectively )
X1=ATM banking
X2= Mobile banking
X3=Internet banking
X4= Credit/debit card banking
𝑒 = Error term
This study will use SPSS (version 28) to create a regression model that will show how the
dependent variable is related to the independent factors. The financial performance of bank to
a one-unit change in the independent variable is measured by the coefficients β1 to β4. At the
 39

95% confidence level, the F-test will be used to see if each independent variable is
significant. To the same end, we will calculate the p-value to see the level of robustness of
the model. Finding a calculated p-value below the 5% threshold of significance will result in
the rejection of the null hypothesis. Finally, if the p-value is less than 0.05, it will be
concluded that the independent variable has a substantial impact on the dependent variable.
Once the calculated P-value is larger than the significance threshold (0.05), it may be inferred
that the model does not have any relevance and cannot be used to account for the fluctuations
in the dependent variable (financial performance of banks).

3.8 Validity and Reliability

Bolarinwa (2015) contends that in order for measuring processes, such as questionnaires,
tests, or observations, to be deemed trustworthy, they must yield consistent results throughout
multiple trials. Mugenda and Mugenda (1999) propose that validity includes both the
significance and accuracy of the conclusions made regarding the objectives of the
investigation.

To ensure the credibility of the study findings, the researcher will carefully evaluate and
comprehensively analyze all pertinent forms and instruments employed to measure the
subject matter being investigated. In order to check the content validity of the questions, a
preliminary survey will be undertaken before distributing the primary questionnaires. This
pilot survey will encompass four banks that are excluded from the sample size. As part of the
pilot project, a single test for each E-banking, taken from a distinct population, will be
conducted. Based on the pilot study, enhancements and adjustments can be made to enhance
the validity. The pilot survey will ideally assess the accuracy of the recommendations and the
pertinence of the survey.
The reliability of the data collected will be measured using the Cronbach's alpha using the
formula (Bonett et al., 2015);

N∗C
α=
V + ( N−1 )∗C
Where;
N = number of items
c̅ = mean covariance between items.
v̅ = mean item variance.
 40

As a rule of thumb for adequate measurement, Cronbach's alphas mirror instructional grades:
A—0.9 or higher are considered excellent;
B—0.8 to 0.9 are adequate;
C—0.7 to 0.8 are marginal;
D—0.6 to 0.07 are seriously suspect;
F—less than 0.6 are totally unacceptable.
The research will adopt this test.

3.9 Pilot study

The questionnaire tool and other experiments will undergo pilot testing in order to refine the
questions and methods prior to their implementation in the real research. Mugenda and
Mugenda (2003) suggest that pilot testing may be conducted with a sample size ranging from
1% to 10%. In line with this recommendation, the present research will use a pilot test with a
sample size of 10%, which equates to four (4) respondents. Prior to distributing the main
questionnaires, a preliminary survey will be conducted on four banks that are not included in
the target sample. This pilot survey aims to assess the validity and credibility of the
questionnaire content. The examination will be conducted in order to identify deficiencies in
the design and execution, as well as to provide surrogate data for the determination of a
probability sample.

3.10 Ethical considerations

Israel (2014) defines ethical concerns in research as the set of standards and criteria that
govern the behavior of researchers. The purpose of these rules and criteria is to ensure the
preservation of the respondents' dignity and to provide the appropriate protocol for reporting
the research results. The researcher will get a formal letter of introduction from the
university, which will provide authorization for the study to be conducted. This
correspondence elucidates the need of data collecting for the present investigation.

The data obtained from the surveys will be exclusively used for academic purposes, and the
selected participants will offer their informed permission. The confidentiality of this
 41

information will be maintained. The researcher will provide further clarification to the
participants that the study lacks any kind of sponsorship and will not exhibit any bias.

3.11 Conclusion
The preceding chapter has furnished a thorough exposition of the research approach that will
be employed in the investigation. The text has provided a detailed explanation of the research
design, strategy, research area, population, sampling processes, validity, reliability, data
collection methods, data analysis methods, and ethical considerations. The study will employ
a descriptive cross-sectional technique, specifically utilizing a survey approach, to assess the
consumption, quality, and origin of building materials in Kajiado County. Data collection
will involve the utilization of questionnaires and observation methodologies. The study will
employ an experimental research methodology to assess the efficacy of E-banking systems.
The study will be carried out in Kajiado County, with the primary objective of
comprehending the influence of E-banking on the financial performance of banks in the area.
The survey will be tailored to cater to the specific needs and requirements of banking
operations supervisors in the research area. The target demographic for this category
comprises of individuals such as managers, accountants, clerks, and bank customers. The
sample size will be 36, determined by a 95% confidence level, a 5% margin of error, and a
population size of 70. The sample distribution will be established via the process of random
sampling.

Primary data will be obtained through the use of surveys, interviews, and experiments.
Commercial banks will get questionnaires, and a comprehensive evaluation of several E-
banking systems will be carried out through a series of tests. The questionnaire data will be
analyzed using the Likert Scale. The qualitative data analysis will be carried out using Python
software, and the quantitative data analysis will be completed using SPSS. The data analysis
will involve the use of descriptive statistics, diagnostic tests, and inferential statistics, namely
correlation and multiple regression analyses. To ensure validity, a pilot study will be
conducted and any necessary revisions to the questions and methods will be made. The
evaluation of reliability will be carried out with Cronbach's alpha, a commonly employed
statistical measure in research. Prior to the main research, the questionnaire and experimental
procedures will be subjected to a pilot testing phase with a small sample size. This will be
 42

done to improve the instruments and techniques. Key components of ethical concerns
encompass securing institutional authority, ensuring data confidentiality, obtaining informed
consent from participants, and ensuring transparency regarding the study's sponsorship and
potential biases.
 43

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 46

APPENDIX I: QUESTIONNAIRE
SECTION I: GENERAL INFORMATION
1. Indicate your gender
Male
Female

2. Indicate your age range

18-25 Years
26-33 Years
34-40 Years
41-47 Years
48 and Above

3. Indicate how many years you have worked at the Organization

0-1 Years
2-4 Years
5-7 Years
8-10 Years
Above 10 Years

4. Indicate your highest level of education.

Certificate
Diploma
Bachelor’s Degree
Master’s Degree
Doctorate Degree

5. Kindly indicate your job description.

Senior Management
Middle Level Management
Lower Level Management

SECTION II: The effect of mobile banking on Financial performance of commercial

 47

Banks

N Questions: Answer the following questions on the effect of E- 1 2 3 4 5

O banking on the financial performance of banks in Kenya to the
best of your knowledge using the following Likert scale.
Strongly Disagree = 1, Disagree = 2, Neutral = 3,Agree = 4,
Strongly Agree = 5.
1 E-banking applications have enhanced service delivery in your
organization.
2 E-banking enhances productivity in the organization.
3 E-banking applications have brought convenience in your service
delivery channels.
4 E-banking applications have increased your service usage due to its
convenience.
5 E-banking applications have enhanced innovative service delivery
channels in your bank.
6 E-banking enhances financial inclusion.
7 E-banking is crucial for efficiency in your banking operations.

SECTION III: The Effect of E-banking on Financial performance of commercial

banks

NO Questions: Answer the following questions on the effect of 1 2 3 4 5

E-banking on the financial performance of banks in Kenya
to the best of your knowledge using the followingLikert
scale. Strongly Disagree = 1, Disagree = 2, Neutral = 3,
Agree = 4,Strongly Agree = 5.
1 E-banking allows customers to access banking services without
necessarily visiting the banking halls.
2 E-banking is crucial for the performance of the bank.
3 E-banking is essential for efficient banking process among
 48

customers.
4 E-banking is essential for providing customer service in the
organization.
5 E-banking platforms have enabled electronic funds transfer
service in your bank.
6 E-banking platforms supports your customer service response
services.
7 E-banking platforms have ensured 24 hours service delivery to
your clients.

Thank you for your participation.

APPENDIX ii: WORK PLAN

Activity September October November December January Feb

2023 2023 2023 2023 2023 2023
Discussion on
research project by
supervisor
Topic development
Approval of topics by
supervisor
Review of variable in
my topic
Proposal writing
Review of my
proposal by lecturer

APPENDIX iii: BUDGET PLAN

 49

APPENDIX iii: BUDGET PLAN

Expense Item Actual Cost
Transport 1600
Printing questionnaires 800
Binding of Information 2000
Lunch 1800
Any extra costs 700
Total 6900