Digital Transformation in Banking and Financial Performance of Commercial Banks in Uasin Gishu County, Kenya.

Abstract

Digital banking adoption refers to the integration and use of electronic platforms such as mobile banking, internet banking, agency banking and automated teller machines (ATMs) to deliver financial services. It is increasingly regarded as a critical driver of efficiency, service delivery and financial performance in the banking sector. Global evidence shows that digital banking usage exceeds 70% in advanced markets, while in Kenya over 80% of banking transactions are now conducted through digital channels. However, financial performance across commercial banks remains uneven owing to disparities in digital infrastructure, cybersecurity risks, high technology investment costs and uneven adoption across institutions, and existing studies provide limited localized evidence on how specific digital channels influence financial performance. Therefore, the purpose of this study was to examine the effect of digital transformation in banking on the financial performance of commercial banks in Uasin Gishu County, Kenya. It specifically assessed the influence of mobile banking adoption, internet banking adoption, agency banking adoption and ATM adoption on financial performance measured through return on assets (ROA), return on equity (ROE) and net interest margin (NIM). The study was anchored on the Technology Acceptance Model, Diffusion of Innovation Theory, Resource-Based View and Transaction Cost Theory. The study adopted a longitudinal panel research design and targeted the 39 licensed commercial banks in Kenya. A purposive sample of 12 commercial banks with complete records was observed over the period 2018–2025, yielding 96 bank-year observations. Secondary data were obtained from Central Bank of Kenya reports, audited financial statements and annual bank reports using a structured data extraction sheet. Data were analysed using descriptive statistics and panel regression analysis in STATA version 17.0, supported by diagnostic and model specification tests, and the random effects model was selected on the basis of the Hausman test. The findings revealed that the four digital banking channels jointly explained 78.0% of the variation in financial performance. Mobile banking adoption had the strongest positive and significant effect on financial performance, followed by internet banking adoption, agency banking adoption and ATM adoption, all of which had positive and significant effects. The study therefore recommends that commercial banks should enhance mobile banking platforms through improved usability, reliability and cybersecurity; strengthen and integrate internet banking systems; expand agency banking networks while improving agent support and service quality; and modernize ATM infrastructure and integrate it with other digital channels.