Factors Affecting The Adoption Of Technological Innovation By Commercial Banks In Kenya

ABSTRACT

This thesis focused on factors affecting diffusion and impact of internet banking. It was based on the theory that when a cost-saving innovation, such as internet banking, is initially introduced, large banks have an advantage to adopt it first and enjoy further growth in size. Over time, due to environmental changes (demand change, technology progress and banking deregulation); the innovation diffuses into smaller banks. As a result, the aggregate bank size distribution increases stochastically towards a new steady state, and there exists important interactions between the IB adoption and the average bank size. In 2006, 96 percent of banks with assets over Kshs 24 billion had a website, compared to only 51 percent with assets under Kshs 8 billion. These observations raise an important question: what explains these variations in adoption of IB. To answer the research questions, an empirical study of banks adopting technological innovation was conducted. The study applied a descriptive survey design. A structured questionnaire was administered to all financial managers in all 46 commercial banks with a response rate of 70%. The SPSS was used to run simultaneous-equation regressions on data. Factors driving adoption of IB include increase average bank assets, non adopters imitating early adopters and loan specialisation in consumer lending. Factors hindering IB adoption include competition among banks and average age of a bank. The study recommends to enhance IB adoption, banks should; strive to increase their average assets size, non adaptors to carefully study early adaptors, specialize in consumer lending, feed off competition by forming strategic alliances finally it‟s cheaper and convenient for new banks to install internet banking technology in a package with other computer facilities compared to old banks. The study is important because banks have been blamed for not adequately satisfying demand for financial services. The research contributes to the debate on how to enhance access to financial services in Kenya.