Abstract:
The banking sector has experienced major revolution. The revolution has been brought
about by modern technology and the need to minimize cost and increase revenues. In order
to minimize costs commercial banks adopted digital financial services namely: Internet
banking, automated teller machines, mobile banking and credit cards. However, despite the
adoption of digital financial services by commercial banks, bank failures are still being
witnessed in Kenya. The objective of this study was to determine the effect of digital
financial services on profitability of Kenya Commercial Bank. The study was guided by
the following specific objectives: To determine the extent to which internet banking
affected profitability of Kenya Commercial Bank; to establish the effect of automate teller
machines on profitability of Kenya Commercial Bank; to find out the effect of mobile
banking on profitability of Kenya Commercial Bank and to investigate the effect of credit
cards on profitability of Kenya Commercial Bank. The study was guided by the following
three theories: the theory of financial innovations, technology acceptance model and
diffusion innovation theory. The study applied descriptive research design. The study used
purposive sampling to select Kenya Commercial Bank from the list of all licensed
commercial banks in Kenya. Kenya Commercial Bank was selected as it is the largest
commercial bank in Kenya with highest technological advancement. The study used
secondary data. The empirical model was based on simple linear regression. The study
established that internet banking was an important factor in enhancing profitability of the
Kenya Commercial Bank (r= 0.706, p- value = 0.022), the study also established that
automated teller machines was important in enhancing profitability of the Kenya
Commercial Bank (r = 0.757; p- value = 0.011). The study further noted that mobile
banking was important in enhancing profitability of the Kenya Commercial Bank (r =
0.630; p- value = 0.021). On the effect of credit cards on profitability of the Kenya
Commercial Bank (r = 0.669; p- value = 0.035). The hypotheses were tested using simple
linear regression analysis, where all the four null hypotheses were rejected based on the tvalues which were all greater than critical t-values. It was concluded that profitability of
the Kenya Commercial Bank was influenced by internet banking, automated teller
machines, mobile banking and credit cards. The study therefore recommended that
commercial banks that seek to enhance their profitability should embrace digitized
financial services. The findings of the study will be important in informing bank managers
on mechanisms of enhancing their profitability
