The Impact of mobile money on bank profitability in Kenya

Abstract

This study examines the impact of mobile money on the profitability of commercial banks in Kenya, focusing on how bank size influences this relationship. Using panel data from selected commercial banks and key macroeconomic indicators like GDP growth, the Central Bank Rate (CBK rate), and the capital adequacy ratio, the analysis was conducted through a pooled ordinary least squares (OLS) regression model. The results show that mobile money has a positive but statistically insignificant effect on bank profitability. This suggests that while mobile money contributes to financial transactions and customer reach, its direct impact on bank profits is limited. Bank size also shows a positive but insignificant effect, indicating that being a larger bank does not necessarily lead to higher profits in this context. Interestingly, the interaction term between mobile money and bank size is found to have a negative but insignificant relationship, suggesting that the benefits of mobile money may reduce as banks become larger, possibly due to increased operational complexities. However, the capital adequacy ratio had a significant negative effect on profitability, highlighting how holding more capital for regulatory purposes can limit income-generating activities. On the other hand, GDP growth and the CBK rate had insignificant effects on profitability. Based on these findings, the study recommends that banks strengthen partnerships with mobile money providers, manage capital more efficiently, and develop strategies to cushion against macroeconomic changes. The study adds to the understanding of how mobile money affects commercial banking profitability, providing insights for banks, regulators, and future researchers.