Digital Financial Innovation and Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Mombasa County, Kenya

Abstract

This study examined the effect of digital financial innovation on the financial performance of DT-SACCOs in Mombasa County, Kenya, while assessing the moderating effect of technology adoption capacity. Specifically, the study evaluated the influence of digital products, digital processes, digital channels, and payment innovations on financial performance and determined whether technology adoption capacity strengthened these relationships. The study was anchored on Schumpeter's Theory of Economic Change, Transaction Cost Theory, and Diffusion of Innovation Theory. The study adopted a descriptive and explanatory research design targeting management and technical employees drawn from the sixteen licensed DT-SACCOs operating in Mombasa County. A stratified random sampling technique was used to select 87 respondents from a target population of 96 employees. Primary data were collected using a structured questionnaire and analyzed using the Statistical Package for Social Sciences (SPSS). Descriptive statistics summarized respondent characteristics and study variables, while correlation and multiple regression analyses were employed to test the study hypotheses. Reliability and validity of the research instrument were established through Cronbach's alpha and expert review respectively, while regression diagnostic tests were conducted to confirm compliance with statistical assumptions. The findings established that digital financial innovation significantly improves the financial performance of DT-SACCOs. Digital products, digital processes, digital channels, and payment innovations each exhibited a positive and statistically significant influence on financial performance. The study further established that technology adoption capacity positively moderated the relationship between digital financial innovation and financial performance, indicating that institutions with stronger ICT infrastructure, staff digital competencies, and organizational readiness derive greater financial benefits from digital innovation. Overall, digital financial innovation enhanced operational efficiency, service delivery, competitiveness, profitability, and financial sustainability among DT-SACCOs. The study concludes that successful implementation of digital financial innovations, supported by adequate technology adoption capacity, is essential for improving the financial performance of DT-SACCOs. It recommends that DT-SACCO management continue investing in digital financial technologies, strengthen ICT infrastructure, enhance staff digital competencies through continuous training, and promote member digital literacy. Policymakers and regulators, particularly the Sacco Societies Regulatory Authority (SASRA), should formulate supportive policies that encourage digital transformation while strengthening cybersecurity, innovation, and digital governance within the SACCO sector. Future studies should employ longitudinal designs and extend the investigation to DT-SACCOs in other counties to enhance the generalizability of the findings.