INFLUENCE OF MOBILE PHONE BANKING ON TRADITIONAL BANKING

TRANSACTIONS; A CASE OF BANKING INSTITUTIONS IN NAIROBI CENTRAL

BUSINESS DISTRICT

BY

ONGWENYI SANDRA OONGE

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS OF THE DEGREE OF MASTER OF ARTS (M.A), PLANNING AND
PROJECT MANAGEMENT SCHOOL OF CONTINUING AND DISTANCE
EDUCATION, UNIVERSITY OF NAIROBI

2012
 DECLARATION

This Research Project is my original work and has not been presented for award of degree in any
other University.

Signed: __________________________ Date ___________________

Ongwenyi Sandra Oonge

Reg. No: L50/62473/2010

This project report has been submitted for examination with my approval as University
supervisor.

Signed: __________________________ Date ___________________

Ms. Anne Ngugi

ii
 DEDICATION

This research project is dedicated to my sisters -Jacky, Carol, Lorraine, Marlene, Gloria and
Linda.

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 ACKNOWLEGEMENT

I thank the Almighty God for the strength, wisdom and providence both materially and
emotionally so as to undertake this study.

My appreciation must also go to my supervisor, Ms. Anne Ngugi for sparing time to provide her
guidance. This research project is a much better work thanks to her supervision.

Finally, I would like to thank my family and friends for all their invaluable support.

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 TABLE OF CONTENT

DECLARATION........................................................................................................................... ii
DEDICATION.............................................................................................................................. iii
ACKNOWLEGEMENT.............................................................................................................. iv
TABLE OF CONTENT................................................................................................................ v
LIST OF FIGURES ................................................................................................................... viii
LIST OF TABLES ....................................................................................................................... ix
ABBREVIATIONS AND ACRONYMS ..................................................................................... x
ABSTRACT .................................................................................................................................. xi
CHAPTER ONE: INTRODUCTION ......................................................................................... 1
1.1 Background of the study .................................................................................................. 1
1.2 Statement of the Problem ................................................................................................. 5
1.3 Purpose of the study ......................................................................................................... 6
1.5 Research questions ........................................................................................................... 6
1.6 Significance of the study .................................................................................................. 7
1.7 Delimitations of the study ................................................................................................ 7
1.8 Limitation of the study ..................................................................................................... 7
1.9 Assumptions of the study ................................................................................................. 8
1.10 Definition of significant terms ......................................................................................... 8
CHAPTER TWO: LITERATURE REVIEW ............................................................................ 9
2.1 Introduction ....................................................................................................................... 9
2.2 Innovation and entrepreneurship in mobile phone transfer services ................................. 9
2.3 Product and service innovations as a result of mobile phone banking............................ 10
2.4 Trends in adoption of mobile phone banking among consumers..................................... 11
2.5 Trends in adoption of mobile phone banking technologyby banking institutions in Kenya
................................................................................................................................................... 14
2.6 Challenges associated with mobile phone money transfer.............................................. 17
2.7 Conceptual framework .................................................................................................... 19
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY ............................... 22
3.1 Introduction ......................................................................................................................... 22

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 3.2 Research design ................................................................................................................... 22
3.3Target Population ................................................................................................................. 22
3.4 Sampling design and sample size ........................................................................................ 23
3.5Data collection methods ....................................................................................................... 24
3.6Reliability and validity ......................................................................................................... 24
3.8 Ethical considerations ......................................................................................................... 25
3.8 Data Analysis techniques .................................................................................................... 25
3.9 Operationalization of variables ........................................................................................... 26
CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND INTERPRETATION ... 27
4.0 Introduction ......................................................................................................................... 27
4.1 Background Information ..................................................................................................... 27
4.1.1 Response rate ................................................................................................................ 27
4.1.2 Period of work in respective banking institutions ........................................................ 28
4.1.3 Respondent's category of work ..................................................................................... 28
4.2 Influence of mobile phone banking on traditional banking transactions ............................ 29
4.3 Effect of products linked to mobile phone banking on traditional banking transactions .... 31
4.4: Effect of trends in adoption of mobile phone banking among customer on traditional
banking transactions .................................................................................................................. 34
4.5 Effect of trends in adoption of mobile phone banking among banking institutions on
traditional banking transactions ................................................................................................ 36
4.6 Effect of challenges faced by mobile phone banking on traditional banking transactions . 39
CHAPTER FIVE:SUMMARY OF FINDINGS, DISCUSSIONS, CONCLUSION AND
RECOMMENDATIONS............................................................................................................ 42
5.1 Introduction .................................................................................................................... 42
5.2 Summary ........................................................................................................................ 42
5.2.1 Influence of mobile phone banking on traditional banking transactions...................... 42
5.2.2 Influence of new products and services linked to mobile phone banking on traditional
banking transactions .............................................................................................................. 43
5.2.3 Effect of trends in adoption of mobile phone banking among customers on traditional
banking transactions .............................................................................................................. 44
5.2.4 Effect of trends in adoption of mobile phone banking on traditional banking
transactions ............................................................................................................................ 45

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 5.2.5 Effect of challenges faced by mobile phone banking on traditional banking
transactions ............................................................................................................................ 45
5.3 Conclusion...................................................................................................................... 46
5.4 Recommendation ............................................................................................................ 47
5.5 Suggestions for further studies ....................................................................................... 48
REFERENCES ............................................................................................................................ 49
APPENDICES ............................................................................................................................. 52
Appendix I: Interview guide ..................................................................................................... 52
Appendix II: Work Plan ............................................................................................................ 57

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 LIST OF FIGURES

Figure 2. 1: A model of the factors affecting the adoption of mobile banking services ............... 12
Figure 2. 2: Conceptual framework .............................................................................................. 20

viii
 LIST OF TABLES
Table 3. 1: Target population ........................................................................................................ 23
Table 3. 2: Variable operationalization table ................................................................................ 26
Table 4. 1: Response rate .............................................................................................................. 27
Table 4. 2: Period of working in bank .......................................................................................... 28
Table 4. 3: Respondent's category of work ................................................................................... 28
Table 4. 4: New products and services initiated as a result of mobile banking ............................ 30
Table 4. 5: Whether or not mobile phone banking is replacing traditional banking .................... 30
Table 4. 6: Products and services linked to mobile phone banking .............................................. 31
Table 4. 7: Trends in adoption of mobile phone banking among customers ................................ 34
Table 4. 8: Trends in adoption of mobile phone banking by banks .............................................. 37
Table 4. 9: Challenges faced by mobile phone banking ............................................................... 40

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 ABBREVIATIONS AND ACRONYMS

AML Anti-Money Laundering

AP Account Provider

ATM Automated Teller Machine

CBD Central Business District

CBK Central Bank of Kenya

CCK Communication Commission of Kenya

CDD Customer Due Diligence

CFT Combating Financial Terrorism

FT Financial Terrorism

KBA Kenya Bankers Association

KYC Know your Customer

ML Money Laundering

MNO Mobile Network Operator

SMS Short Message Service

TAM Technology Acceptance Model

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 ABSTRACT
This study was carried out to examine the influence of mobile phone banking technology on
traditional banking transactions with reference to Kenya’s banking institutions. The study was
motivated by an increased revolution in the banking sector with an overall gap remaining in the
addressing the implications of mobile phone banking to traditional banking transactions. The
study is expected to contribute to the existing knowledge on mobile phone banking by addressing
the gaps left in previous research on mobile phone banking in relation to banking transactions,
highlight the trends in adoption of mobile phone banking among banking institutions as well as
customers and thus address the concerns that may be leading to the discrepancy between level of
technology adoption and usage. This may help banking institutions readdress the technology
adoption strategies to be in line with customer taste and preferences. The study recommends
possible policy strategies to be undertaken by the government in order to address the challenges.
A descriptive case design was used in which banking institutions within Nairobi’s Central
Business District were the target population. Data was gathered through semi structured
questionnaires whose reliability and validity was tested. Analysis of data was done through
qualitative and quantitative techniques with help of Statistical Package for Social Sciences. The
study findings indicated that mobile phone banking can be said to have transformed the way
banking activities are undertaken. This has been through introduction of new products and
services that as per these study findings include cash transfers, payment of bills, deposits and
account statement inquiries. Though mobile phone banking is faced with myriad of challenges, it
does not necessarily imply that banks are turning away from its usage to traditional banking
ways. The study recommended that the government should have a clear regulatory framework in
order to improve the level of confidence among banking institutions in the new technology .This
would increase the level of adoption among customers as well as banking institutions. It is also
recommended that banking institutions reconsider investing in risk and compliance functions to
save them on major losses. A further study should be undertaken on the mobile phone banking
challenges and the subsequent effect on the rate of adoption of mobile banking among
customers.

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The remarkable gains made towards mobile phone access have seen a steady progress in the
scope of innovations emanating from exploitation of these fairly new technologies. What has
characterized the Kenyan mobile phone landscape is a rapid uptake of various services key
among them the mobile phone based products. Mobile banking is one innovation which has
progressively rendered itself in pervasive ways cutting across numerous sectors of economy and
industry. An appropriate banking environment is considered a key pillar as well as an enabler of
economic growth (Jorgensen, 2004).

The terms mobile phone banking and mobile banking (M-Banking) are used interchangeably.
The term M-Banking is used to denote the access to banking services and facilities offered by
financial institutions such as account-based savings, payment transactions and other products by
use of an electronic mobile phone device. Mobile banking has yielded a multiple effect on the
number of solutions available to clients. This is in addition to more efficient transactional
environment and the high substitution of banking points. Porteous (2006) distinguishes two
aspects of mobile banking: Additive and transformational characteristics. Additive aspects are
those in which the mobile phone is merely another channel to an existing bank account. Mobile
banking is additive when it merely adds to the range of choices or enhances the convenience of
existing customers of mainstream financial institutions. Transformational characteristics arise
when the financial product linked to the use of the phone is targeted at persons who do not hold
formal bank accounts with the conventional banking institutions.

Nyangosi (2008) asserts that the only single access requirement or barrier to the resultant mobile
banking will be the mobile phone. However, worldwide market penetration of affordable cellular
devices and growing network service diffusion makes this intricacy almost fully resolved hence
setting a firm pedestal for mobile banking escalation. The effects of usage associated with
mobile phone banking in Kenya are yet to be consolidated or quantified in a well documented
fashion. With the dramatic adoption of mobile banking services this study seeks to extend its

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scope of analysis to indicators that reflect the nature of usage. This ranges from overall patterns
of use, access and provision strategies and consumption patterns.

In Kenya, Mobile phone banking started with the creation of services by banks which could be
accessed through the mobile phone. These facilities aimed to enable customers access
information relating to their accounts (Njenga, 2009). Subsequent innovations have seen the
mobile banking phenomena continue to grow steadily. Mobile banking takes several dimensions
of execution all representing a new distribution channel that allows financial institutions and
other commercial actors to offer financial services outside traditional bank premises (Njenga,
2009).

The transformational mobile banking is made available by mobile phone service providers as
part of their value added services. It is embedded among other services within the service
providers menu. The perceived difference between mobile service providers mainly lies on the
pricing strategy, quality and scope of services as well as the pricing strategy. The mobile banking
services are available to mobile phone users of the two major mobile services providers namely
Safaricom and Zain. Safaricom’s service is branded “Mpesa” and Zain’s service goes by the
“Zap” brand name. The latest entrants i.e. Orange / Telkom and Econet wireless are also
expected to roll out their mobile banking services in the course of time (Toyama, 2009).

While the fees charged for transactions are largely below those levied by traditional banks for
similar services, low incomes amongst the vast proportions of the population tends to reduce the
levels of affordability. But prices are expected to decline over time as competition intensifies.
For instance the launch of Zap service at a flat rate of Kshs. 10 ($0.3) is expected to have a ripple
effect on Mpesa whose average transaction charge stands at Kshs. 35 ($ 0.5).The collective
access points of mobile banking are numerous and widespread (CCK, 2009). The service vests a
heavy reliance on airtime distributors who double as agents. It is these agents who decide on the
most strategic points to locate their service outlets. This highly differs from the conventional
banking systems whereby banks will only be located in major urban centres. Currently Safaricom
has over 5,000 agents across the country; while Zain prides itself of having over 3,000 agency
setups in the short span it has operated the Zap service. This translates to over 8.000 mobile
banking outlets around the country within a span of three years since inception. A Central Bank

2
of Kenya survey CBK (2008) sets the number of conventional bank branches at 876. In addition
to these branches there are only 1424 ATM machine sin total, implying that within the short
duration of operation the M-banking outlets have tripled that of traditional banks.
With the continuously emerging wave of information driven economy, the banking industry in
Kenya has inevitably found itself unable to resist technological indulgence (Lonie, 2007). The
need for convenient ways of accessing financial resources beyond the conventional norms has
seen the recurrent expansion and modernization of banking patterns. Given the huge demand for
finance oriented services, institutions beside the historical banks have joined the frayin an
attempt to grab a piece of the perceived cake of opportunity within the banking industry.

The pent up demand for an affordable and reliable way of holding funds while ensuring that risk
levels are consigned to a minimum is consistently unfolding ( Camna, 2009) . A system with the
potential to obliterate the historical hurdles of cost and free access which have for a long time
stood in the way of willing partakers of banking services evokes immediate attention and
interest. The unprecedented uptake of mobile phone banking services in Kenya is a testament to
this fact.

This has led to radical transformation in banking today; this has been coupled with fast changing
technology, customer needs, and financial regulations. The symptoms of these changes are
obvious as indicated by new products, new services and new production
processes(Gatere,2008).Use of mobile phone banking is perhaps one of the major technological
changes that has attracted attention for researchers, and stakeholders in the financial sector. This
is because of its seemingly increased usage as a method of money transfer among individuals
and corporate organizations as well. Today, banks have welcomed wireless and mobile
technology into their boardroom to offer their customers the freedom to pay bills, planning
payments while stuck in traffic jams, to receive updates on the various marketing efforts while
present at a party to provide more personal and intimate relationships (Otubu, 2009).

According to Otubu (2009) some of the features where mobile banking has lent its hand are fund
transfer and bill payment where the customers have the freedom of maintaining account through
mobile. The technology has also welcomed other financial services like share trading, with the

3
latest information technology revolution enabling sophisticated enquiry based banking services
for credit or debit alerts. Nevertheless, a gap remains in addressing the overall influence of
mobile phone banking on traditional banking transactions. This is evidenced by studies that
reveal unresolved issues on mobile phone banking and little or no examination on how the
technology is affecting banking transactions.

Evidence of such gaps were seen in a study carried out by Luarna (2005) who presented a delink
between development of mobile banking systems among banking institutions and usage of the
systems by potential users in Taiwan. In his study “Towards understanding the behavioural
intentions of use mobile banking ”, Luarna indicated that there was considerable research on
Technology Acceptance Model (TAM) that predicted whether individuals would accept and
voluntariry use information systems , but underscored the limitation of TAM which ommited
trust based construct in the context of electronic mobile commerce and the assumption that no
barriers prevent individuals from using information systems if she or he chooses to do so.

Graham, (2011)examined how trust can emerge and be sustained in context of mobile
transactions . The study focused on M-pesa , a mobile banking system and used data from an
ethninographic study that was deployed in Kibera - One of Africa’s biggest slums .One of the
research findings and of significance to the present study was that weak interpersonal relations
between customers and mobile money tranfer agents.

A review of the background reveal that that mobile phone banking is one of the technological
revolutions in todays banking sector. It has undouted potential in the way it could positively
impact banking transactions, through increasing income streams for the banks and increasing
customer satisfaction that comes with the convieniency and satisfaction brought by the
technology. However , the extent to which this in realistically possible remains questionnable
owing to the studies that reveal unadressed concerns between investments in mobile phone
banking systems among banking institutions and adoption of mobile banking by potential
customers . This study intended to fill in this gap by examining the effect of mobile phone
banking on traditional banking banking transactions with reference to banking institutions
within Nairobi’s Central Business District (CBD)

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1.2 Statement of the Problem

Banking in Kenya today has undergone radical transformation as a result of fast changing
technology. The symptoms of these changes are obvious as indicated by new products, new
services and new production processes (Gatere,2008).Use of mobile phone banking; perhaps one
of the major technological changes has seemingly increased usage as a method of money transfer
among individuals and corporate organizations as well.

Today, banks have welcomed wireless and mobile technology into their boardroom to offer their
customers the freedom to pay bills, planning payments while stuck in traffic jams, to receive
updates on the various marketing efforts while present at a party to provide more personal and
intimate relationships. (Otubu, 2009). Despite this welcome, mobile phone banking technology
by banking institutions, a gap remains in addressing the overall implications of mobile phone
banking, in relation to traditional banking transactions. This is evidenced by studies that reveal
unresolved issues on mobile phone banking and little or no examination on how the technology
is affecting banking transactions.

From the background, it is evident that mobile technology is offering customers with business
efficiency solutions with regard to payment of bills, receiving updates on marketing efforts from
banks as well as providing an opportunity for more intimate relationships with banking
institutions. However , Graham, (2011) and Luarna, (2005)argue that the extent to which this in
realistically possible remains questionnable owing to the studies that reveal unadressed concerns
between mobile phone and traditional banking transactions.

Existing studies on mobile phone banking have overemphasized on the importance of mobile
phone technology leaving a gap in the way the adoption of mobile phone banking is affecting
traditional banking transactions within Kenya’s banking institutions . This study therefore
sought to address this gap by examining the various products adopted through mobile phone
banking technology and the subsequent influence on banking tranasctions in Kenya’s banking
institutions.

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1.3 Purpose of the study

The study sought to establish the influence of mobile phone banking on traditional banking
transactions in Kenya’s banking institutions

1.4 Objectives

The study sought to accomplish the following objectives

i. To establish the effect of new products associated with mobile phone banking on
traditional banking transactions
ii. To establish the trends in adoption of mobile phone banking technology among banking
institutions and the effect on traditional banking transactions
iii. To find out the effect of trend of adoption of mobile phone banking among customers on
traditional banking transactions
iv. To find out the challenges faced by banking institutions in adopting mobile phone
banking and their effect on traditional banking transactions
1.5 Research questions

The study sought to answer the following questions

i. What is the effect of new products associated with mobile phone banking on traditional
banking transactions?
ii. What is the effect of trends in adoption of mobile phone banking technology among
banking institutions on traditional banking transactions?
iii. What is the effect of trend in adoption of mobile phone banking among customers on
traditional banking transactions?
iv. What are the challenges and effect of mobile phone banking on traditional banking
transactions?

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1.6 Significance of the study

The study will contribute to the existing knowledge on mobile banking by addressing the gaps
left in previous research on mobile phone banking in relation to banking transactions. The study
will highlight the trends in adoption of mobile phone banking among banking institutions as well
as customers, by doing so it will address the concerns that may be leading to the discrepancy
between level of technology adoption and usage. This may help banking institutions readdress
the technology adoption strategies to be in line with customer taste and preferences. By
examining the challenges facing mobile phone money transfer, the study recommends possible
policy strategies to be undertaken by the government in order to address the challenges.

1.7 Delimitations of the study

The study focused on mobile phone banking which is a contemporary concern among the
customers and banking institutions. This means that respondents were interested in providing
information that made the study a success.

The study area has high concentration of banking institutions, and a wide diversity of customer
needs and preference due to the fact that it is the capital city of Kenya. It is also within the
convenience of the researcher, this made the process of data collection easy, cheaper and less
tedious.

1.8 Limitation of the study

Confidentiality of information and reluctance of banking institutions to share strategic
information. The study required an in-depth examination and required the researcher to choose
questions that are general enough to have information that was representative of banking
institutions. This might have probably left out information that is specific to certain banking
institutions.

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1.9 Assumptions of the study

That banking institutions are aware of mobile phone banking and have either integrated the
technology in their banking systems, are in the process of integrating the technology or are not
planning to integrate mobile phone banking within their banking operation. That mobile phone
banking is affecting traditional banking transactions by increasing, decreasing or remaining
constant.

1.10 Definition of significant terms

Adoption Acceptance of technological innovations among banking institutions as well

customers

Banking Banking can simply be expressed as the business of keeping, lending,

exchanging and issuing money.

Billing Organizing, securing, and managing resources to achieve specific goals

Challenges Hurdles associated with mobile phone money transfer

Innovation Innovation is the creation of better or more effective products, processes,

services, technologies, or ideas that are accepted by customers within the
banking industry

Mobile phone Performing balance checks, account transactions and payment via mobile
banking device such as mobile phones

Traditional Undertaking banking activity physically, for example opening a bank

Banking account, withdrawing money, making payment, or seeking a physical help
transactions from the bank a customer can open any bank account in banks, take the
facility of saving his money by depositing money in local bank. He can
withdraw his money through check, counter payment and through bank draft.
He can meet the bank manager and ask his problem.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction

This section focuses on mobile phone banking as a technological innovation in the banking
industry and examines how the innovation has affected banking transactions. Like any another
innovation, the chapter examines the theory of innovation and entrepreneurship as important
concepts that drive the adoption of mobile phone banking and its overall acceptance by the
customer fraternity which consequently affects the direction of banking transactions .

An empirical review of the product and service innovations in the banking sector as a result of
mobile phone banking, trends in adoption of mobile phone banking among customers and
banking institutions as well as challenges facing mobile phone banking are important aspects
through which the overall relationship between mobile phone banking and banking transactions
is examined. The conceptual framework defines the interrelationship that exists between the
independent and dependent variables in the study.

2.2 Innovation and entrepreneurship in mobile phone transfer services

This study was based on entrepreneurship and innovation theory by Joseph Schumpeter 1838-
1950). The original approach focusing on the role of innovation on entrepreneurship was by
Joseph Schumpeter (1838-1950). He focused on the role of innovation in economic and social
change. Schumpeter argued to study the economy through static lenses focusing on the
distribution of given resources across different roads. As described by Shane (2003)
Schumpeter’s view of economic development had to be seen as a process of qualitative change
driven by innovation taking place in historical time. As examples of innovation, Schumpeter
mentioned new products, new methods of production, new sources of supply, exploitation of new
markets, and new ways to organize business. He defined innovation as a new combination of
existing resources. Through these combinations he labeled the entrepreneurial function.

For successful innovations, Schumpeter noted the important role played by entrepreneurs. That
is, the prevalence of inertia or resistance to new ways at all levels of society that entrepreneurs
had to fight in order to succeed in their aims. Adretsch (2003) describes the Schumpeter’s theory
as the one that emphasizes innovation ignoring risk taking and organizing abilities of an

9
entrepreneur. The theory of entrepreneurship is important to this study as it describes the
relationship between innovation and entrepreneurship. Innovations as seen in the theory bring
about economic and social change.

On other hand innovation presents as opportunity through which entrepreneurs can create new
products, new methods of production, new sources of supply, exploitation of new markets, and
new ways to organize business. In the study context, mobile phone banking presents an
opportunity for banking institutions to have new ways of doing business that is likely to bring
economic and social changes within the customer fraternity. This is expected to be reflected in
the way banks introduce new product and services as a result of the innovation, the trends of
adopting the new innovations among customer and challenges faced in the new adoption.

2.3 Product and service innovations as a result of mobile phone banking

According to Graham, (2011), mobile banking (also known as M-banking and SMS banking) is a
term used for performing balance checks, account transactions and payment via mobile devices
such as mobile phones. Mobile banking today is most often performed via SMS or mobile
internet, but can also be used by special programs called clients downloaded to the mobile
device. As a result of mobile banking technology, a wide spectrum of mobile banking business
models have evolved. Among such business models include; bank-led model, non-bank led
model and mobile banking services. The bank-led model as discussed by Graham (2011) offers a
distinct alternative to conventional branch based banking, in that customer conducts financial
transactions of the whole range of retail agents ( or through mobile phone ) instead of bank
branches or through employees . The model promises the potential to substantially increase the
financial service outreach by using delivery channels ( retailers / mobile phones ) a different
trade partner, having experience and target market distinct from traditional banks and may be
significantly cheaper than the bank based alternatives. The non-bank led model; is where a bank
does not come into the picture (except possibly as a safe keep of surplus funds).

Mobile banking services can offer services such as; Account information – which entails, mini-
statement inquiry and checking of account history, alerts on account activity or passing of set
threshold, monitoring of term deposits, access to loan statements, access to card statement,
mutual funds/equity statement, insurance policy management, pension plan management and

10
status on cheques, stop payment on cheques. Payment and transfers- which include domestic and
international fund transfers, micro-payment handling, mobile recharging, commercial payment
processing , bill payment processing, peer to peer payment, business to business payments,
Savings and Investment- that include ; portfolio management services, real-time stock quotes,
personalized alerts and notification on security prices. Support that entails - Status of request for
credit including mortgage, approval, and insurance, coverage, cheque book and card requests.
Exchange of data messages and email, including complaint submission and tracking,
communication on new ATM location. Content service which entails - General information such
as weather updates, news loyalty-related offers and location-based services (Njenga, 2009).

The advent of mobile phone banking has seen a revolutionary change in banking institutions as
evidenced by a series of studies undertaken. A study undertaken by Kimenyi, (2009) indicated
that technological innovations have now made it possible to extend financial services to millions
of poor people at relatively low cost. A case in point is mobile telephone money transfer services
that allow mobile phone users to make financial transactions or transfers across the country
conveniently and at low cost. Kenya’s main mobile payment service, known as M-PESA,
provided by the main mobile phone company, Safaricom in conjunction with Vodafone,
represents a good example of how low-cost approaches that use modern technology can
effectively expand the financial services frontier. Today, millions of Kenyans use M-PESA to
make payments send remittances and store funds for short periods. Many of those without bank
accounts are able to use this service, at low risk and cost (Njenga, 2009).

2.4Trends in adoption of mobile phone banking among consumers

Adoption of mobile phone banking presents a catalyst through which banking institutions could
invest in systems aimed at facilitating the process (CBK, 2007). For mobile phone banking to
have overall effect on banking transactions, then the investment made by the financial
institutions should resonate with the customers’ level of adopting the technology. According to
Mattila, (2003) the newly emerged mobile banking services represent an innovation where both
intangible services and an innovative medium of service delivery employing high technology are
present, thus the concepts of innovation and diffusions of innovation are even more intricate as
technology and service aspects have an effect on the characteristics of mobile banking services
(Nyangosi, 2008) .

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Research relating to customer adoption of innovations has shown that it is perceived attributes of
innovation rather than personal characteristics that are stronger predictors of adoption decision
(Black, 2002). In the search to understand consumers adoption of innovation , where research
has focused on consumer perspective , Rogers’ diffusion model which originally dates back in
1962 has been used . Within the financial services innovation research, Black (2002) applied
Rogers’s model to internet banking .According to Rogers (1995) the perceived innovation
characteristics are supposed to provide the framework on how potential adopters perceive an
innovation. Research that has investigated the product characteristics of innovation has
generally endorsed evaluating the innovation along the product characteristics that involve
five constructs ; relative advantage , compatibility , complexity, trialability and observability
(Rodgers 1995). These factors have been summarised on figure 1 below.
Figure 2.1: A model of the factors affecting the adoption of mobile banking services

Source: Rodgers, (1995)

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Particularly in banking services, the perceived risk associated with the financial product itself as
well as with electronic delivery channel is higher than in basic consumer goods and hence
increasing the importance of innovation attribute (Harrison, 2000). Ensuring security and
confidentiality are fundamental; prerequisites before any banking activity involving sensitive
information can take place (Kolodinsky, 2000). Relative advantage, compatibility, trialability
and observability are positively related to adoption of innovation while complexity and perceived
risk are negatively associated (Rogers, 1995).This innovation attributes and mobile phone
banking are likely to affect the overall banking transactions and are further detailed under
empirical implications.

Studies reveal Northern European countries are among the most advanced ones in the adoption
to and use of different new mobile and technological appliances and these countries have
extended the implementation of technological advancement in banking services ( Finland
statistics , 2002 ) In Finland , payment and account management products over mobile phones
such as SMS service have been available since 1992, television based banking since 1998, and
banking via mobile internet WAP since 1999 (Mattila, 2002 ).Finish customers conduct their
routine banking via internet , over 70% of customers visit a branch office less than twice in a
year , with the number of branches in Finland shrinking in rhythm with increased internet
banking usage ( Finnish Bankers Association, 2002 ). At the moment internet is also the leading
electronic banking channel elsewhere where the electronic delivery channels have been
introduced, although telephone banking seemed to have toehold on the British financial services
market. (Daniel, 1999). As indicated above, the landscape of wireless services is presently
changing and expected improvement in mobile phone devices will encourage uptake of mobile
banking.

The above argument depicts that the landscape of wireless services is presently changing and the
expected improvements in 2.5G and 3G devices and networks will encourage the uptake of
mobile banking. Although the densities of fixed and mobile connections are high in all the
Nordic countries, the number of most advanced Internet-enabled mobile phones is still fairly
low; in Finland 20 % of population has Internet-enabled device. Access to advanced model is
slightly more common to men than to women. In addition younger people have advanced mobile

13
phones more often than older people, in fact in the age group 60 years or over as well as among
retired persons the access rate is only 3-9 % (Porteous, 2006).

People who have attained tertiary education have more often an Internet enabled mobile phone,
but the effect is not as strong as that of age (Statistics Finland 2002). One issue driving future
mobile banking is the cost efficiency pressures from supply side. Payment transaction costs vary:
manually in a branch from $2.60 to $4.40, with automatic teller machine $0.44 and less than
three cents via mobile phone. Quite often wireless capability is built into financial institution's
software platform, leaving maintenance and upgrades as the only added costs (Mattila, 2002).

2.5Trends in adoption of mobile phone banking technologyby banking institutions in

Kenya

Research has shown that adoption of mobile phone technology has occurred at perhaps the
fastest rate and to the deepest level of any consumer‐level technology in history (Suri, 2010).
According to Suri (2010) first mobile phone companies were publicly owned, and began
operations in the mid‐1990s on a small scale. Over time mobile phones in Kenya have eclipsed
landlines as the primary means of telecommunication: while the number of landlines had fallen
from about 300,000 in 1999 to around 250,000 by 2008, mobile phone subscriptions had
increased from virtually zero to nearly 17 million over the same time period (CBK, 2007).

The most popular form of mobile money transfer in Kenya is commonly known as M-PESA
which begun in April, 2007 following a donor funded pilot project (Kimenyi, 2009). The service
allows users to deposit money into an account stored on their cell phones, to send balances using
SMS technology to other users (including sellers of goods and services), and to redeem deposits
for regular money ( Kimenyi, 2009 ) . Charges, deducted from users’ accounts, are levied when
e‐float is sent, and when cash is withdrawn. M‐PESA has spread quickly, and has become the
most successful mobile phone‐based financial service in the developing world. The average
number of new registrations per day exceeded 5,000 in August that year, and reached nearly
10,000 in December .By August 2009, a stock of about 7.7 million M‐PESA accounts had been
registered. Ignoring multiple this suggests that about 38 percent of the adult population has
gained access to M‐PESA in just over 2 years (Suri, 2010).

14
Mobile banking started with the creation of services by banks which could be accessed through
the mobile phone. These facilities were aimed to enable customers access information relating to
their accounts. Subsequent innovations have seen the mobile banking phenomena continue to
grow steadily. According to Njenga, (2009) mobile banking takes several dimensions of
execution all representing a new distribution channel that allows financial institutions and other
commercial actors to offer financial services outside traditional bank premises.

Njenga ( 2009) , further explains that transformational mobile phone banking is made available
by mobile phone service providers as part of their added services. It is embedded among other
services within the service providers menu. The perceived difference between mobile service
providers mainly lies on the pricing strategy, quality and scope of services. The mobile banking
services are available to mobile phone users of the two major mobile service providers namely
Safaricom and Zain. Safaricom’s service is branded “Mpesa” and Zain’s service goes by the
“Zap” brand name. The latest entrants i.e. Orange / Telkom and Econet wireless have also rolled
out their mobile phone services.

The collective access points of mobile banking are numerous and widespread. The service vests
a heavy reliance on airtime distributors who double as agents. It is these agents who decide on
the most strategic points to locate their service outlets (Jorgensen 2004). This highly differs from
the conventional banking systems whereby banks will only be located in major urban centres.

Currently Safaricom has over 5,000 agents across the country; while Zain prides itself of having
over 3,000 agency setups in the short span it has operated the Zap service. This translates to over
8.000 mobile banking outlets around the country within a span of three years since inception. A
Central Bank of Kenya survey CBK (2008) sets the number of conventional branches at 876. In
addition to these branches there are only 1424 ATM machines in total implying that within the
short duration of operation the M-banking outlets have tripled that of traditional banks

According to Mbogo, (2010) Mobile technology is relatively a new business practice in Kenya as
it was introduced about ten years ago. Nonetheless it is being widely used by a large population
of the micro-businesses therefore making it thrive in the midst of many banks. This research will
be based on the mobile payment technology with a specific emphasis on the Global System for
Mobile Communications (GSM) provider, Safaricom mobile payment, M-PESA. Several mobile

15
payment trend studies have revealed the potential of mobile network technologies for payment
purposes (Mark, 2012).

A study undertaken by Nyangosi,(2011) showed that financial products through cell phones were
found to have gained popularity. Customers found it easy, convenient, and efficient to transact
conventional banking services which are non-monetary in nature such as balance enquiry,
transfer of funds and changing of password. The research proposed to ask their feeling toward
the emergence of SMS banking. The strong feeling were indicated by strongly agree and the
weakest feeling was indicated by strongly disagree. Majority of Kenyan customers strongly
agreed that mobile banking is a useful channel for banking services. Different e- banking
services provided through a cell phone in Nyangosi’s study was found to be balance inquiry,
requesting cheque book, know last few transactions, requesting bank statement, stop payment of
cheque, and bill payment.

Evidence from studies reveals that Kenyan Banks have been undertaking some new
technological adoptions in their business operations. A study undertaken by Gatere, (2008)
presented contemporary outsourcing practices of the Kenyan banking sector. A questionnaire
was sent to forty commercial banks operating in Kenya. Descriptive analysis results indicated
that the outsourcing strategies had been geared towards adaptability to ever changing technology
and competitive business environment.

A survey done by Central Bank of Kenya ( 2008) indicated that there was steady increase in use
of e-banking technologies such as automated teller machine (ATM), mobile and Internet (online)
banking, electronic funds transfer, direct bill payments and credit card (CBK 2008). The report
further indicated that ATM banking was one of the earliest and widely adopted retail e-banking
services in 2008. However, according to an annual report by Central Bank of Kenya (CBK), its
adoption and usage has been surpassed by mobile banking (M-banking) in the last few years
(CBK 2008). Currently, there are about 8 million users of M-banking services compared to 4
million people who hold accounts in conventional financial institutions in Kenya (CBK 2008).

There is also a growing partnership in financial institution and non-financial service providers
where consumers through use of e-banking and other e-commerce services such as M-banking
can transact and clear utility bills through shared banks’ platforms. For example shared ATM

16
network in Kenya under the brand name Kenswitch (Kenya switch). It is a national network of
interconnected ATMs, a project owned by a group of banks which was launched in 2002. It had
about 14 ATM locations by the end of 2002, which has now grown to about 152 (Vaughan
2007).

Banks and other financial institutions have moved to e-banking in their efforts to cut costs while
maintaining reliable customer service (Kolodinsky, 2001). However, as the industry embraces
these new opportunities they have to contend with issues and face challenges that arise in the
context of banking risks. As such, an innovative and proactive approach to risk management is
vital as banks move into the new territory (Patrick, 2002).The strategic choice that a bank makes
in response to these issues and challenges will determine the future of mobile banking and the
degree of effectiveness it realizes in its context. Much literature on the context of adopting
mobile phone banking has been intertwined within e banking which provides a whole set of
services. This study however seeks to draw attention to mobile phone banking in relation to
banking transactions, which majority of the studies examined did not provide an in-depth focus

Among the many ways cell phones have been used in Kenya, the most innovation is mobile
money. Mobile money is a global innovation with the potential to become an additional engine
of Kenya’s growth and an important tool for poverty reduction. Starting with the M-PESA
system launched by Safaricom in 2007―and later joined by Zain’s Zap and Yu’s Yu Cash in
2009, and Orange Money in 2010―mobile money has rapidly become a fixture in the lives of
Kenyans, extending a sophisticated form of financial access to a wide population. The World
Bank estimates that by end 2010, 15 million Kenyans (3/4 of the adult population) will use
mobile money (CCK, 2009)

2.6 Challenges associated with mobile phone money transfer

The integration of mobile phone money transfer technology is not a smooth road as evidently
revealed in the empirical studies undertaken. A study undertaken by Mbogo, (2010) showed
majority of M-banking users are low and average income earners . These categories also happen
to hold high percentage of people without bank accounts . On this pretext , users percieve mobile
banking as a service that completely substitutes bank accounts . This may in a way deny the
banks an opportunity to undertake banking functions upon such customers.

17
The question of outsourcing mobile phone service providers in order to provide mobile banking
among banks in such as scenerio becomes an uphill task . Mbogo further underscores the
challenge of rural urban access , according to him , concentration of mobile phone banking is
evidently heavier in urban setting, Universal acess in rural areas is faced with numerous
challenges including how to manage the float (Cash) in light of prospected demand. Access
becomes a serious issue of concern in some other underdeveloped regions where network signals
are extremely sparse. Operators have tended to focus mainly on the densely populated economic
zones.

Pelowski, (2010) did a study that sought to examine the key factors that led to phenomenal
growth of mobile phone banking services in Kenya using M-pesa. The study reviewed key
factors that led to phenomenal growth of mobile money banking services in Kenya using M-pesa
“Mobile cash money,”The leading mobile money service provider as a case study . System
failure was indicated in this study as among the key challenge the mobile phone banking
faced.This was because of poor network reception , frequent power outrages and overload of
Safaricoms central servers .

Challenges in the regulation of mobile money was highlighted by (Luarna, 2005). The study
indicated that although mobile money is critical to development ,the increase in usage in areas
that were potentially vulnerable to money launders ( ML) and terrorist financing was worrying
.The study noted that the presence of regulations reinforced money banking , however it
empasised that regulators were uncertain about how best to regulate mobile banking for financial
integrity.He further explained that as more countries draft mobile banking regulations,
operational guidance on optimal means to develop effective anti – money laundering (AML) and
combating the financial terrorism ( CFT) regulatory framework for mobile money was prooving
to be insufficient and incomplete. One driving concern is that regulatory initiatives would be
assessed as non compliant when subjected to AML/CFT , a situation that would lead to excessive
rigidity and conservertism in regulations .

Integrity of mobile phone banking goes beyond know your customer ( KYC ) obligations ,
customers due deligence (CDD) is a challenging aspect of financial integrity controls and even
more so for mobile money ( CBK, 2003) . The expansion of mobile money is dependent on the
way ML/FT risk assessments are undertaken , the way suspicious transaction are reported, the

18
way record keeping requirements are designed and the way outsourcing agency relationships are
defined and regulated. This means that any likely disconnect between the above mentioned
aspects may influence the direction of banking transactions. This could be either with respect to
the level of trust that customers develop on mobile banking as well as potential losses that
banks may incur as a result of risk measures not catered for .

According to CBK , (2007) Mobile business models are quickly developing and diversifying
since 2008. The binary divide between bank-led and mobile network operator ( MNO) led
model no longer hold true. The variety and complexity of new emerging models signal
creativity of this industry , however one downside of this evolution is fragmentation of services .
It leads to muiltiplication of different players each responsible for some key element of money
tranfers . MNOs however continue to be key backbone of all models because they provide the
mobile communication servvice or channels , whereas money deposited to and withdrawn from
m-money systems is stored in an account in a bank or a third party.Regulations requires that an
Account Provider ( AP) is held responsible and accountable for the money program as a whole.In
cases where the bank is an account provider , more costs may be incurred in ensuring the the
whole process of mobile money tranfers adheres to the set financial regulations .

2.7 Conceptual framework

According to Kothari (2004) a conceptual framework defines the interelatonship between

variables deemed important in a study. Kenya Institute of management (2009) further indicates
that it is within the conceptual framework where the interelationship between dependent and
independent variables of a study are examined.This study particularly interelates banking
transactions and mobile banking .This relationship has been indicated in figure 2 below.

19
Figure 2.2: Conceptual framework

Service and product innovations

• Money transfers
• Payment of bills
Traditional Banking
• Bank statement enquiry
transactions
• Mobile accounts
• Increased enquiries
Adoption by Customers through mobile phones
• Billing through mobile
• Accessibility
phones
• Usability
• Compatibility • Cash transfer from
• Immediate positive effect banks through mobile
• Security and trustworthiness phones

Adoption by Banks Dependent Variable

• Accessibility
• Usability
• Compatibility
• Immediate positive effect
• Security and trustworthiness

Challenges of mobile phone banking

• Low income
• Rural Urban access
• System failure
• Integrity issues
• Service Fragmentation

Independent Variables
Social economic environment
Financial regulations

Intervening variables

20
Banking transactions is the dependent variable in the study and is subject mobilephone banking
in the sense that ; like any other technological innovation , mobile phone banking presents a wide
range of products and services that banks could provide to their potential customers. Examples
of such products and services include ; payment of bills , enquiry of account balances and cash
transfers. The extent to which banks are able to use mobile phone technology to innovate new
products is percieved to have an influence on weather or not banking transactions increase or
decrease .

The ultimate expectation of banking instituions from introduction of financial innovations linked
to mobile phone banking,is that customers will like the innovations and certainly adopt them as
their form of banking. However this still remains subject to innovation features and other social
economic aspects in the context of a customer.Trends of adoption of mobile phone banking
among customers is therefore expected to have an influence on the direction of mobile phone
banking transactions .

Mobile phone banking is a process characterised by two parties . That is the mobile network
operator and the account provider . Banks participation in mobile phone banking is evidenced in
situations where banks act as account providers and hence tasked with the responsibility of
mantaining a clients account through mobile phones.The question of weather or not banks are
willing to adopt the mobile phone banking systems owing to costs incurred in systems
installation and regulations and risks involved in the process

Like any other technology , mobile phone money transfer is subject to technological challenges.
Among such challenges as mentioned by Mbogo (2010); Pelowski, (2010) and CBK (2007)
include low income among users of mobile phones , systems failure and insufficient regulations .
The extent to which banks are able to circumvent through the challenges will ultimately
determine the extent the direction to which banking transactions take .

21
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

This chapter has discussed the research methodology to be used by the researcher to examine
mobile banking and banking transactions in Kenya’s banking institutions. The following
subtopics have been discussed; Research design, target population, sampling technique, sample
size, data collection, data analysis and ethical considerations.

3.2 Research design

This study adopted a descriptive case design. According to Kenya Institute of Management
(2009), case studies involve indepth and detiled decription of a single entity, situation or
phenomenon (or a very small group). The description is usually prepared as a report ,usually
containing a detailed description of observations during the entire data collection process.

3.3Target Population

Target population is defined by Orodho (2009) as total individuals, elements or groups to be

studied. The target population for this study was banking institutions in Nairobi Central Business
district. Nairobi Central Business district was of particular focus for this study due to its
concentration of busiess corporation and wide range of banking institutions as well as
diversity of customers who are potential users of mobile phone banking . According to Pulse
Africa , (2007).

The CBD has high concentration of headquarters for businesses and corporations. Among the
banks located in central business district included , Barclays Bank of Kenya , Equity bank ,
Trans national bank , Kenya Commercial bank , I & M Bank , National bank of Kenya , Family
and cooperative bank. The customer base for these banks include individuals from Nairobi’s
cosmopolitan population, businesses such as hotels, schools, and corporate organizations from
within the central business district and its surroundings

22
The research targeted managers at all levels and sales executives who are believed to have
adequate knowledge and experience in formulating innovation adoption strategies, as well as
marketing the innovations to potential customers.

The Nairobi Central Business districts host the 11 major banking institutions (with branches in
Nairobi and Mombasa and other major towns in the country) in Kenya which this study is
focusing. This includes; Barclays Bank of Kenya, Standard Chartered Bank, Kenya Commercial
Bank, Stanbic Bank, Commercial Bank of Africa, Cooperative Bank of Kenya, African Banking
Corporation, Citi Bank, National Bank of Kenya, National Industrial Credit Bank and Equity
Bank. Managers from all levels of management and marketing executives will be targeted for the
study. Every bank therefore provided at least three managers and 3 marketing executives so that
the total target population becomes 66 respondents.

Table 3.1: Target population

Employee category Managers population Marketing executives

Barclays Bank of Kenya
Standard Chartered Bank
Kenya Commercial Bank
CFC Stanbic Bank
Citi Bank
National Bank of Kenya
Commercial Bank of Africa
Cooperative Bank of Kenya
African Banking Corporation
National Industrial Credit Bank
Equity Bank
Total
Source: Kenya Bankers Association (2011) List of Banking institutions and their branches
3 3
3 3
3 3
3 3
3 3
3 3
3 3
3 3
3 3
3 3
3 3
33 33

3.4 Sampling design and sample size

The study used stratified random sampling to select samples to participate in the study. The
target population was stratified into managers and marketing staff. Chandran (2004) defines
stratified sampling as grouping of study elements into homogenous strata and then picking a
sample from each stratum for the final sample size. This enabled the researcher to improve the
accuracy /efficiency of estimation, focus on important sub-populations, ignore the irrelevant ones
and facilitate balancing of difference between strata by sampling equal numbers from strata

23
varying widely in size. The census survey was done so that each banking institution targeted in
the study included 3 managers and 3 marketing executives. This formed a study sample of 66
respondents.

3.5Data collection methods

The study used individual interviews to gather data from the respondents. According Kenya
Institute of Management (2009) an interview is a formal meeting or communication framework
between two parties whose primary objective is to procure of factual information. An interview
guide for the respondents, with semi – structured questions were designed to help collect data on
mobile banking and banking transactions in a standard way. This study presented a case where a
thorough analysis is required. An interview guide therefore facilitated this by allowing face to
face contact with the researcher, enabling respondents to seek clarification where in ambiguous
questions, and enabling the researcher to address language and intellectual difficulties that may
exist.

3.6Reliability and validity

According to Mugenda (2003), research instruments need to be valid and reliable in order to
produce useful results. Validity of research instruments is achieved when they measure what they
are indented for, on other hand, reliability is achieved when are research instruments has internal
consistency .This study used an expert opinion to test content validity of the research instrument
used .On other hand, standard deviation as the measure of variance was used to test the reliability
of the research instrument. This was done using the formula;

s= ∑ (x-m) 2

n-1

Where s = Standard deviation

x = The individual score in each item
m =The mean scores per instrument
n =Total score
The smaller the Standard deviation, the higher the reliability of the research instrument

24
3.7 Data collection procedure

Data collection procedures started approval of the proposal by the supervisor. An introduction
was issued to the sampled banking institutions for consent to collect data from managers and
marketing executives. The researcher issued scripts with interview question to the respondents
and discussed the questions with the respondents as they provided their responses.

3.8 Ethical considerations

Ethical consideration seeks to ensure that research practices do no inflict on human rights as well
as cultural norm and values of a society (Mugenda, 2003). For the purpose of this study,
permission to carry out the study was sought from corporate managers from the various banking
institutions. The researcher also assured confidentiality to the respondents and affirmed that the
study was made for purposes of accomplishing academic goals. The researcher acknowledged all
sources of information from other scholars.

3.8 Data Analysis techniques

Qualitative data analysis involved explanation of information obtained from the empirical
literature. Quantitative analysis involved use of numeric measures to the scores of various
responses on effects of culture on strategy implementation this entailed generation descriptive
statistics after data collection, and formation of data sets, estimation of population parameters
from the statistics, and making of inferences based on the statistical findings. This was done with
help of Statistical Package for Social Sciences (SPSS). The output of the analysis was presented
in tables and charts and interpretations made based on the research objectives.

25
3.9 Operationalization of variables

Table 3.2: Variable operationalization table

TYPE OF SCALE OF TOOL OF

VARIABLE INDICATORS MEASUREMENT
VARIABLE MEASUREMENT ANALYSIS
Traditional Dependent • Physical enquiry or bank Increasing/ Ordinal Descriptive
banking statements , application decreasing / remains
of loans, and account constant
opening
• Physical withdrawal and
deposit of cash
• Payment of bills over the
counter
Product Independent • Money Transfers Number of new Ordinal Descriptive
Innovations • Payment of bills products
• Bank statements enquiry
• Mobile accounts
• Savings

Adoption of Independent • Accessibility Rate of adoption in a Ordinal Descriptive

mobile phone • Usability given period Ratio
banking by • Compatibility
customers • Immediate positive
effect
• Security and
trustworthiness

Adoption of Independent • Accessibility Rate of adoption in a Nominal Descriptive

mobile phone • Usability given period ordinal
banking by • Compatibility
banks • Immediate positive
effect
• Security and
trustworthiness
Challenges of Independent • Low income Number of Nominal Descriptive
mobile phone • Rural Urban Access complaints ordinal
banking • System failure Perceived risks
• Integrity issues
• Service fragmentation
Social Intervening • Education Concentration of Nominal Descriptive
Economic • Economic status banks
environment • Living standards Number of people
able to afford and
use mobile phone to
bank
Financial Intervening • Legal provision of Guidelines to Scale Descriptive
Regulations mobile banking undertake mobile
banking provided in
the law

26
 CHAPTER FOUR

DATA ANALYSIS, PRESENTATION AND INTERPRETATION

4.0 Introduction
This chapter discussed the study findings on influence of mobile phone banking on traditional
banking transactions. The study sought to answer the questions of; What is the effect of new
products associated with mobile phone banking on traditional banking transactions, what is the
effect of trends in adoption of mobile phone banking technology among banking institutions on
traditional banking transactions, what is the effect of trend in adoption of mobile phone banking
among customers on traditional banking transactions and what are the challenges and effect of
mobile phone banking on traditional banking transactions. The study targeted 11 banking
institutions within Nairobi Central Business District and with branches in Nairobi and other
major towns in the country. Bank managers and marketing executives were purposively selected
to provide information.

4.1 Background Information

The study background presented the result on response rate, respondent’s experience of work in
respective banks and management categories.

4.1.1 Response rate

Table 4.1: Response rate

Frequency Percent Cumulative Percent

Responded 48 72.7 72.7

Did not respond 18 27.3 100.0
Total 66 100.0

The researcher sampled 66 respondents composed of managers of banking institutions and

marketing executives. 48 of the targeted respondents filled and returned the questionnaire
representing a response rate 72.7%. 18 (27.3%) did not respond to the questionnaire. The study

27
response rate was above 50% which according to Mugenda (2003) is adequate enough to
represent the study phenomenon.

4.1.2 Period of work in respective banking institutions

Table 4.2: Period of working in bank

Frequency Percent Cumulative Percent

1-5 years 17 35.4 35.4

5-10 years 23 47.9 83.3
10-15 years 5 10.4 93.8
Over 15 years 3 6.3 100.0
Total 48 100.0

The period of work within which respondents had worked in various banks was indicator of their
understanding and experience of mobile phone banking and how it had influenced traditional
banking. Work period was distributed between 1-years, 5-10 years, 10-15 years, and over 15
years. 35.4% of respondents indicated having worked in their respective banks for a period of 1-
5 years, 47.9% indicated having worked for a period of 5-10 years, and 10.4% had worked for a
period of 10 – 15 years while 6.3% had worked for over 15 years. Majority (47.9%) of the
respondents had worked for a period of 10- 15 years, reflecting a good experience on what
mobile phone banking and its influence on traditional banking.

4.1.3 Respondent's category of work

Table 4.3: Respondent's category of work

Work category Frequency Percent Cumulative Percent

Top management 3 6.3 6.3

Middle level management 20 41.7 47.9
Lower level management 7 14.6 62.5
Marketing executive 18 37.5 100.0
Total 48 100.0

28
The study targeted bank managers and marketing executives. Managers were expected to be
from top, middle and lower level management. The study results indicated that 6.3% of the
managers were in top level management, 41.7% were from middle level management, 14.6%
were from lower level management while 37.5% represented marketing executive. Majority
(41.7%) of respondents were middle level managers who were closely followed by marketing
executives. This indicated that the study has majority of respondents either involved in
overseeing implementation of mobile phone banking or trends in the usage of the technology
among customers and banking institutions.

4.2 Influence of mobile phone banking on traditional banking transactions

In establishing the effect of mobile phone banking on traditional banking transactions, the
researcher focused on finding out the new products that banks had initiated as a result of mobile
phone banking, she further sought the respondents’ opinion on how the mobile phone banking
innovations had affected traditional banking. Further inquisition was done on the influence of
mobile of phone banking on traditional banking by asking respondents to indicate their opinion
on influence of new products linked to mobile phone banking, trends in adoption of mobile
phone banking among customers, trends in adoption on mobile phone banking among banking
institutions and challenges faced by mobile phone banking and how this has affected traditional
banking transactions.

4.2.1 Influence of new products linked to mobile phone banking

Respondents were asked to indicate the new products and services linked to mobile phone
banking in their respective banks. The results were presented and discussed as follows;

29
Table 4.4: New products and services initiated as a result of mobile banking
Products and services linked to mobile phone Frequency Percent Cumulative Percent
banking

Cash transfers, Payment of bills and Account

23 47.9 47.9
statements

Cash transfers, Payment of bills, Account

19 39.6 87.5
statements inquiry, Deposit
Cash Transfers, Payment of bills , Account
6 12.5 100.0
statements inquiry, Deposits and Withdrawals
Total 48 100.0

The products initiated as a result of mobile phone banking as indicated from the findings
included, cash transfers, payment of bills and account statements inquiry and deposits. Majority
(47.7% ) of the respondents indicated that their banking institutions had innovated new ways of
cash transfers, payment of bills and account statements enquiry as a results of mobile phone
banking .A few banks indicated that in addition to cash transfer, payment of bills and account
statements, they had also initiate depositing and withdrawing cash through mobile phone
banking.

Table 4.5: Whether or not mobile phone banking is replacing traditional banking
Frequency Percent Cumulative Percent
Yes 30 62.5 62.5
No 18 37.5 100.0
Total 48 100.0

The study further sought to establish the respondent’s opinion on whether or not mobile phone
banking was replacing traditional way of doing business in respective banking institutions.
62.5% majority of the respondents felt that mobile phone banking was replacing traditional
banking while 37.5% felt that it was not. This could imply that mobile phone banking to some
extent transformed the way banking activities were undertaken, a situation that could have an
overall effect on the traditional banking transactions.

30
4.3 Effect of products linked to mobile phone banking on traditional banking transactions

As a result of mobile phone banking, banks were expected to have come up with different
products that would in turn change the way banking activities were undertaken. This was found
out by asking respondents to indicate their level of agreement with various assertions related to
mobile phone banking products and how this had impacted on traditional banking transactions.

Table 4.6: Products and services linked to mobile phone banking

Frequency Percentage %
Strongly agree 34 70.8%
Agree 12 25.0%
Neutral 2 4.2%
There are more transactions due to
Disagree 0 0.0%
mobile phone banking
Strongly
0 0.0%
Disagree
Total 48 100.0
Strongly agree 22 45.8%
Agree 18 37.5%
Neutral 8 16.7%
More customers are paying bills through
Disagree 0 0.0%
their mobile phones
Strongly
0 0.0%
Disagree
Total 48 100.0
Strongly agree 5 10.6%
Agree 25 53.2%
Neutral 12 25.5%
Accounts portfolio has increased due to
Disagree 5 10.6%
use of mobile phone money transfers
Strongly
0 0.0%
Disagree
Total 47 100.0
Strongly agree 10 20.8%
Agree 14 29.2%
There have been more cash deposits and Neutral 15 31.2%
withdrawals due to mobile phone Disagree 9 18.8%
banking Strongly
0 0.0%
Disagree
Total 48 100
Strongly agree 18 37.5%
Agree 26 54.2%
There is a noticeable change in
Neutral 4 8.3%
transactions based on mobile phone
Disagree 0 0.0%
banking technology
Strongly
0 0.0%
Disagree

31
 Total 48 100
Strongly agree 35 72.9%
Agree 13 27.1%
Neutral 0 0.0%
Mobile phone banking has enabled the
Disagree 0 0.0%
banks to reach the unbanked population
Strongly
0 0.0%
Disagree
Total 48 100
Strongly agree 30 62.5%
Agree 18 37.5%
Neutral 0 0.0%
Mobile phone banking has yielded
Disagree 0 0.0%
positive reaction among consumers
Strongly
0 0.0%
Disagree
Total 48 100
Strongly agree 0 0.0%
Agree 2 4.2%
Neutral 13 27.1%
The bank offer savings and overdraft
Disagree 17 35.4%
services through mobile phone banking
Strongly
16 33.3%
Disagree
Total 48 100
Strongly agree 12 25.0%
Agree 9 18.8%
Neutral 18 37.5%
Mobile phone banking has expanded
Disagree 5 10.4%
branchless banking
Strongly
4 8.3%
Disagree
Total 48 100

It was evident among respondents that banking transactions had increased as a result of mobile
phone banking. Majority (70.8%) of the respondents strongly agreed with the assertion that
banks were undertaking more transactions due to mobile phone banking. Among the products
found to have transformed the way of banking included; payments of bills, account opening, cash
deposits and withdrawals.

Most of the respondents (45.8%) were in agreement that more customers were paying bills
through mobile phones. It was also noticed from majority (53.2%) of the respondents who agreed
that account portfolio had increased due to use of mobile phone money transfers. The results did
not provide conclusive findings on effects of mobile phone banking on traditional cash deposits
and withdrawals. This was reflected in 31.2% majority respondents who indicated a neutral

32
opinion on the assertion that there have been more cash deposits withdrawals due to mobile
phone banking.

According to Nyangosi, (2011) a reflection of traditional banking could be shown in the number
of customers banking institutions were able to reach. Nyangosi notes that with mobile phone
banking, there has been a transformation in the way banks reached their clients coupled with
taping of traditionally untaped market. The study findings concured with Nyangosi’s observation
in the sense that majority (72.9%) of the respondents were in agreement that mobile phone
bankig had enabled banks to reach out unbanked population.The study results indicated that there
was positive reaction on mobile phone banking amongst customers.This was evidenced from
62.5% of the respondents who agreed with the assertion that mobile phone banking had yieded a
positive reaction among consumers. A positive reaction towards mobile phone banking among
customers could imply that traditional banking ways could be transformed by mobile phone
banking.

It was not clear among respondents that overdraft facilities and savings that have traditionally
been provided banking institutions were done through mobile phone banking . On the assertion ,
banks offer savings and overdraft services through mobile phone banking 35.5% majority of
respondents disagreed with the assertion. This could imply that mobile phone banking had not
completely replaced traditional banking transactions, as some transactions were suitably done
through traditinal banking .

Mobile phone banking was in the literature considered an important prerequisite of branchless
banking . According to Mattila, (2003) the newly emerged mobile banking services represent an
innovation where both intangible services and an innovative medium of service delivery
employing high technology are present. Such innovative medium would enable banks to
undertake banking activities without having banking branches. The study results did not however
provide evidence on how mobile phone banking had enhanced branchless banking replacing the
traditional way of banking. This was evidenced by 37.5% majority of respondents who indicated
a neutral opinion on the assertion that mobile phone banking had expanded branchless banking.

33
4.4: Effect of trends in adoption of mobile phone banking among customer on traditional
banking transactions

Adoption of mobile phone banking among customers will go a long way in shaping the style of
banking that customers would want to use. In the event of favorable adoption, it is likely that
customers would change their way of banking towards the newly adopted technology and this
may have an effect on traditional or convectional way of banking. This study established the
trends in adoption of mobile phone banking among customers in pursuit of providing a
prediction on the direction that traditional banking transaction may take. The results are
presented in table 9 below.
Table 4.7: Trends in adoption of mobile phone banking among customers

Frequency Percentage %
Strongly agree 2 4.2%
Agree 3 6.2%
Neutral 18 37.5%
Most customers are not aware of
Disagree 16 33.3%
how to use mobile banking
Strongly
9 18.8%
Disagree
Total 48
Strongly agree 1 2.1%
Agree 13 27.1%
Complexity of mobile phone Neutral 5 10.4%
banking has slowed down Disagree 15 31.2%
technology adoption process Strongly
14 29.2%
Disagree
Total 48
Strongly agree 22 45.8%
Agree 12 25.0%
Easy access, timeliness and cost
Neutral 11 22.9%
saving nature of mobile banking
Disagree 3 6.2%
has led to it increased adoption
Strongly
among consumers 0 0.0%
Disagree
Total 48
Strongly agree 10 20.8%
Agree 13 27.1%
Neutral 16 33.3%
Customers feel secure while using
Disagree 9 18.8%
mobile phone banking
Strongly
0 0.0%
Disagree
Total 48

34
 Strongly agree 0 0.0%
Agree 9 18.8%
Neutral 23 47.9%
Many customers have little trust
Disagree 12 25.0%
for mobile phone banking
Strongly
4 8.3%
Disagree
Total 48
Strongly agree 2 4.2%
Agree 12 25.0%
Most customers adopt mobile Neutral 18 37.5%
phone banking based on cost Disagree 11 22.9%
considerations Strongly
5 10.4%
Disagree
Total 48
Strongly agree 12 25.5%
Agree 20 42.6%
Banks have invested in mobile Neutral 9 19.1%
banking systems because it is a Disagree 4 8.5%
profitable venture Strongly
2 4.3%
Disagree
Total 47

Most customers were found to be aware of usage of mobile phone banking. In the assertion,
“Most customers are not aware of how to use mobile phone banking, (52.1%) respondents
disagreed with the assertion, and 37.5% were neutral while 10.4% agreed with the assertion.
Majority disagreement would indicate that mobile phone banking was a user friendly technology
and therefore likely that if customers adopt mobile phone banking, there was a likelihood of
transformed effect on traditional banking transactions. The neutral response could signal
availability of mobile phone banking but not yet used among respondents.

Mobile phone banking technology was not found to be complex to an extent where customers
could not adopt the technology. In the assertion,’ Complexity of mobile phone banking has
slowed down technology adoption process; majority (31.2%) disagreed with the assertion. This
would imply that many customers were adopting mobile phone banking technology and thus a
likely effect on traditional banking.

Easy access, timeliness and cost saving nature of mobile phone banking was established in the
assertion “Easy access, timeliness, and cost saving nature of mobile phone banking had increased
adoption among its customers. The findings indicated that 45% majority of respondents strongly

35
agreed with the assertion. This was an indication that mobile phone banking had favorable
attributes of innovation among customers thus agreeing with Rodgers, (1995) model of
technology acceptance.

It was not clear on the level of security felt by customers in reference to mobile phone banking.
In the assertion “Customers feel secure while using mobile phone banking, 33.3% of the
respondents were neutral on the assertion. This could imply that some customer may prefer to
use traditional banking in fear of security threat as a result of mobile phone banking. This
concurs with (Luarna, 2005) observation that although mobile money is critical to development,it
usage will further depend on the extent to which customers feel secure about their finances .

This was further evidenced by the majority agreements on the assertion that : ‘ Many customers
had little trust for mobile phone banking. It was not clear wether customer adopted mobile phone
banking based on cost considerattion.This could imply that customer would either chose mobile
phone banking or traditional banking based on other considertations other than cost . Majority of
respondents (42.6%) agreed with the assertion that banks had invested in mobile banking
systems bacause it was a profitable venture . This could imply that banking institutions were
getting many customers from mobile phone banking thus reflecting an effect on traditional
banking transactions.

4.5 Effect of trends in adoption of mobile phone banking among banking institutions on
traditional banking transactions

Trends in adoption of mobile phone banking among banking institutions was considered suitable
indicator on the direction to be taken by future banking transactions. In the event that banks
invest intensively in mobile phone banking systems rather than traditional banking systems, then
there was a likely that traditional banking transactions are reducing. Respondents were asked to
indicate their agreement with various assertion related adoption of mobile phone banking among
banking institutions. The results were presented on table 10 below.

36
Table 4.8: Trends in adoption of mobile phone banking by banks

Frequency Percentage %
Strongly agree 0 0.0%
Agree 5 10.4%
Banks find mobile banking to be Neutral 13 27.1%
a risky business model Disagree 23 47.9%
Strongly Disagree 7 14.6%
Total 48
Strongly agree 4 8.3%
Poor clarity in regulatory Agree 23 47.9%
measures on mobile phone Neutral 13 27.1%
banking demand caution on Disagree 8 16.7%
technology Strongly Disagree 0 0.0%
Total 48
Strongly agree 19 39.6%
Agree 25 52.1%
Changing landscape of wireless
Neutral 4 8.3%
banking has encouraged uptake
Disagree 0 0.0%
of mobile banking
Strongly Disagree 0 0.0%
Total 48
Strongly agree 23 47.9%
Agree 25 52.1%
Banks have increased partnership
Neutral 0 0.0%
with mobile phone service
Disagree 0 0.0%
providers
Strongly Disagree 0 0.0%
Total 48
Strongly agree 7 14.6%
Agree 19 39.6%
Banks have increased focus on
Neutral 17 35.4%
outsourcing to embrace mobile
Disagree 5 10.4%
phone banking
Strongly Disagree 0 0.0%
Total 48
Strongly agree 2 4.3%
Agree 6 12.8%
Risks involved in mobile phone
Neutral 22 46.8%
banking have led to slower
Disagree 7 14.9%
adoption by banks
Strongly Disagree 10 21.3%
Total 47
Strongly agree 10 20.8%
Banks have taken strategic Agree 21 43.8%
choices towards countering the Neutral 15 31.2%
challenges of mobile phone Disagree 2 4.2%
banking Strongly Disagree 0 0.0%
Total 48

37
 Strongly agree 13 27.1%
Agree 22 45.8%
Banks don't perceive mobile
Neutral 6 12.5%
phone service providers as a
Disagree 2 4.2%
threat
Strongly Disagree 5 10.4%
Total 48
Strongly agree 1 2.1%
Agree 16 33.3%
Many players in mobile phone
Neutral 16 33.3%
banking make the process
Disagree 13 27.1%
complicated
Strongly Disagree 2 4.2%
Total 48

It was disagreeable among majority of respondents that banks found mobile phone banking a
risky business model. In the assertion, Banks find mobile phone banking a risky business model,
47.9% of the respondents disagreed with the assertion, this implied readiness of banking
institutions to adopt mobile phone banking technology and risks associated with the business
model. It was however , agreed among majority ( 47.9%) of respondents that poor clarity in
regulation measures of mobile phone banking demand caution in the technology . one would
therefore reason that failure to phase out traditional banking was among the cautions that
banking institutions were likely to take towards shielding against unpredictable occurrence in
mobile phone banking .

Other aspects that depicted uptake of mobile phone banking among banking institutions included
changing landscape of wireless banking – Majority (52.1%%) of the respondents agreed with the
assertion that changing landscape of wireless banking had encouraged uptake of mobile phone
banking. It was also noticed from majority (52.1%) that banks had increased partnership with
mobile phone service providers in pursuit of adopting mobile banking technology. Outsourcing
was also a signal of mobile phone banking adoption among banking institutions. The response in
the assertion that “ Banks had increased a focus on outsourcing to embrace mobile phone
banking , majority ( 39.6%) of respondents agreed with the assertion.

It was not clear the effect of risks involved in mobile phone banking on traditional banking
transactions. In the assertion “ Risks involved in mobile phone banking had led to slower
adoption of mobile phone banking , 46.8% majority of respondents indicated a neutral opinion.
This could imply that there was no conclusive evidence that risks in mobile phone banking were

38
associated with uptake of mobile phone technology among banking institution and further
impacted on traditional banking transactions.

It was not clear on the strategic choices that banking institution had put in place towards
countering the challenges of mobile phone banking. On the assertion “Banks had made strategic
choices towards countering the challenges of mobile phone banking, 43.8% majority of
respondents agreed with the assertion. This could imply that mobile phone banking was not
affected by associated challenges and banks would adopt the technology regardless of the
challenges involved. Mobile phone banking was evidently found complicated by the many
players in the operation. In the assertion, many players in mobile banking make the process
complicated, the researcher found 33.3% and 2.1% of the respondents agreed and strongly
agreed with the assertion. This could imply that mobile phone banking players would at times
make banking institutions look for alternative ways in case where a particular transaction would
be complicated by the mobile banking process.

4.6 Effect of challenges faced by mobile phone banking on traditional banking transactions

Challenges faced by customers as well as banking institution in the integration of mobile phone
banking into mainstream banking operations may have influence on the tradition banking
transactions. This study established effect of mobile phone banking challenges on traditional
banking by asking respondents to indicate their agreement with various assertions related to
challenges faced by mobile phone banking. The findings were presented on table 11 below.

39
Table 4.9: Challenges faced by mobile phone banking

Frequency Percentage %
Strongly agree 4 8.3%
Agree 26 54.2%
Mobile phone banking is often
Neutral 13 27.1%
faced by failure of network
Disagree 4 8.3%
systems
Strongly Disagree 1 2.1%
Total 48
Strongly agree 0 0.0%
Mobile phone banking is more Agree 13 27.1%
perceived to be a substitute of Neutral 13 27.1%
traditional banking than a Disagree 20 41.7%
complement Strongly Disagree 2 4.2%
Total 48
Strongly agree 1 2.1%
Agree 19 40.4%
System failure has eluded the
Neutral 10 21.3%
reliability of mobile phone
Disagree 12 25.5%
banking
Strongly Disagree 5 10.6%
Total 47
Strongly agree 0 0.0%
Agree 20 41.7%
Mobile phone banking is entrusted
Neutral 12 25.0%
to agents whose integrity can't be
Disagree 13 27.1%
strictly regulated
Strongly Disagree 3 6.2%
Total 48
Strongly agree 10 20.8%
Agree 25 52.1%
Banks can't control the process of Neutral 1 2.1%
mobile banking efficiently Disagree 11 22.9%
Strongly Disagree 1 2.1%
Total 48
Strongly agree 6 12.5%
Agree 23 47.9%
Lack of clear regulatory
Neutral 12 25.0%
framework poses a risk to banks
Disagree 7 14.6%
and customers
Strongly Disagree 0 0.0%
Total 48

40
It was agreeable among majority of respondents that mobile phone banking was often faced by
network failures. In the assertion, Mobile phone banking is often faced by failure of network
systems “54.2% majority of respondents agreed with the assertion. This could imply that banking
institutions would as much as having mobile phone banking systems have alternatives ways of
doing business in case of systems failures.

In the assertion ‘mobile phone banking is more perceived to be a substitute of bank accounts
rather than a compliment” 41.7% majority of respondents disagreed with the assertion indicating
that mobile phone banking was not substituting traditional banking. This would mean that
traditional banking transactions would be influenced on which among the two modes of banking
i.e. mobile phone banking and traditional banking is favorable and convenient t to the customer.

Though mobile phone banking was previously termed as user friendly technology, it was
agreeable among majority (40.4%) that its reliability was being eluded by systems failure. This
concurs with findings in the literature by Pelowski (2010) who indicates that system failure was
among the major challenges faced by mobile phone banking. This could imply it could be hard
for customers as well as banking institutions to entirely depend on mobile phone banking for
entire banking process, which further implies an effect on traditional banking transactions.
Mobile phone banking is entrusted to agents whose integrity cannot be strictly regulated, this is a
situation that majority (41.7%) agreed with implicating a challenges within mobile phone
banking will continue to attract customers to traditional banking.

It was also agreeable among 52.1% majority of respondents that banks cannot control the process
of mobile phone banking efficiently. This is probably because of the many players in the process.
In such a scenario, it is likely that customers and banks will prefer traditional banking way thus
resulting to lack of confidence in mobile phone banking. Lack of clear regulatory framework in
mobile phone banking was found to affect both the banks and customers as well. Majority
(47.9%) were in agreement that lack of clear regulatory framework posed a risk to banks as well
as customers. This could imply that challenges involved in mobile phone banking would make
customer prefer to use traditional banking ways thus impacting positively on traditional banking
transactions.

41
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter presents the summary of findings, conclusion and recommendation on the influence
of mobile, phone banking on traditional banking. The study sought to; Establish new products
associated with mobile phone banking influenced traditional banking transactions, establish the
trends in adoption of mobile phone banking technology among banking institutions and how this
affected traditional banking transactions, find out the rate of adoption of mobile phone banking
among customers and its effect on traditional banking transactions, and to find out the challenges
faced by banking institutions in adopting mobile phone banking and how they influenced
traditional banking transactions .

The researcher sampled 66 respondents composed of managers of banking institutions and

marketing executives. 48 of the targeted respondents filled and returned the questionnaire
representing a response rate 72.7%. Majority (47.9%) of the respondents had worked for a period
of 10- 15 years, reflecting a good experience on what mobile phone banking and influence on
traditional banking. Majority (41.7%) of respondents were middle level managers who were
closely followed by marketing executive. This indicated that the study has majority of
respondent either involved in overseeing implementation of mobile phone banking as well as
trends in the usage of the technology among customers.

5.2 Summary

5.2.1 Influence of mobile phone banking on traditional banking transactions

The researcher used various ways to establish the effect of mobile phone banking on traditional
banking. This included; establishing the new products and services established as a result of
mobile phone banking and their influence on traditional banking, looking in into trends of
adopting mobile phone banking among customers and banking institutions, and finding out the
challenges affecting mobile phone banking and how they influenced traditional banking
transactions.

42
5.2.2 Influence of new products and services linked to mobile phone banking on traditional
banking transactions

The products initiated as a result of mobile phone banking as indicated from the findings
included, cash transfers, payment of bills and account statements inquiry and deposits. Majority
(47.7% ) of the respondents indicated that their banking institutions had innovated new ways of
cash transfers, payment of bills and account statements acquisition as a result of mobile phone
banking .A few banks indicated that in addition to cash transfer, payment of bills and account
statements, they had also initiate depositing cash through mobile phone banking .62.5% majority
of the respondents felt that mobile phone banking was replacing traditional banking while 37.5%
felt that it was not.

It was evident among respondents that banking transactions had increased as a result of mobile
phone banking. Majority (70.8%) of the respondents strongly agreed with the assertion that
banks were undertaking more transactions due to mobile phone banking. Among the products
and services revealed and found to have transformed way of banking included; payments of bills,
account opening and cash deposits and withdrawals. Most of the respondents (45.8%) were in
agreement that more customers were paying bills through mobile phones. It was also noticed
from majority respondents agreed that accounts portfolio had increased due to use of mobile
phone money transfers.

The results did not provide conclusive findings effects of mobile phone banking on traditional
cash deposits and withdrawals. This was reflected in 31% majority response by respondents who
indicated a neutral opinion on the assertion that there have been more cash deposits withdrawals
due to mobile phone banking. Majority (72.9%) of the respondents were in agreement that
mobile phone banking had anabled banks to reach out unbanked population.The study results
indicated that there was positive reaction on mobile phone banking amongst customers.This was
evidenced from 62.5% of the respondents who agreed with the assertion that mobile phone
banking had yieded a positive reaction among consumers.

It was not clear among respondents that overdraft facilities and savings that have traditionally
been provided banking institutions were done through mobile phone banking . On the assertion ,
banks offer savings and overdraft services through mobile phone banking 35.5% majority of

43
respondents disagreed with the assertion.The study results did not however provide conclusive
evidence on how mobile phone banking had enhanced branchless banking replacing the
traditional way of banking. This was evidenced by 37.5% of respondents who indicated a neutral
opinion on the assertion that mobile phone banking had expanded branchless banking.

5.2.3 Effect of trends in adoption of mobile phone banking among customers on traditional
banking transactions

Most customers were found to be aware on usage of mobile phone banking. In the assertion,
“Most customers are not aware of how to use mobile phone banking, (52.1%) respondents
disagreed with the assertion, and 37.5% were neutral while 10.4% agreed with the assertion.
Mobile phone banking technology was not found to be complex technology. In the assertion,’
Complexity of mobile phone banking has slowed down technology adoption process; majority
(31.2%) disagreed with the assertion. Easy access, timeliness and cost saving nature of mobile
phone banking was established in the assertion “Easy access, timeliness, and cost saving nature
of mobile phone banking had increased adoption among its customers. The findings indicated
that 45% majority of respondents strongly agreed with the assertion.

It was not clear on the level of security felt by customers in reference to mobile phone banking.
In the assertion “Customers feel secure while using mobile phone banking, 33.3% of the
respondents were neutral on the assertion. This concurs with (Luarna, 2005) observation that
although mobile money is critical to development ,it usage will further depend on the extent to
which custoemrs feel secure about their finances . This was further evidenced by the majority
agreements on the assertion that : ‘ Many customers had little trust for mobile phone banking. It
was not clear wether customer adopted mobile phone banking based on cost consideration.
Majority of resondents (42.6%) agreed with the assertion that banks had invested in mobile
banking systems bacause it was a profitable venture .

44
5.2.4 Effect of trends in adoption of mobile phone banking on traditional banking
transactions

It was disagreeable among majority of respondents that banks found mobile phone banking a
risky business model. In the assertion, banks find mobile phone banking a risky business model,
47.9% of the respondents disagreed with the assertion, Majority (47.9%) of respondents felt that
poor clarity in regulation measures of mobile phone banking demanded caution in the use of the
technology. Other aspects that depicted uptake of mobile phone banking among banking
institutions included changing landscape of wireless banking – Majority (52.1%%) of the
respondents agreed with the assertion that changing landscape of wireless banking had
encouraged uptake of mobile phone banking. It was also noticed from majority (52.1%) that
banks had increased partnership with mobile phone service providers in pursuit of adopting
mobile banking technology. Outsourcing was also a signal of mobile phone banking adoption
among banking institutions. The response in the assertion that “ Banks had increased a focus on
outsourcing to embrace mobile phone banking , majority ( 39.6%) of respondents agreed with the
assertion.

It was not clear the effect of risks involved in mobile phone banking on traditional banking
transactions. In the assertion “ Risks involved in mobile phone banking had led to slower
adoption of mobile phone banking , 46.8% majority of respondents indicated a neutral opinion.
Banks were found to have made strategic choices towards countering the challenges of mobile
phone banking. On the assertion “Banks had made strategic choices towards countering the
challenges of mobile phone banking, 45.8% majority of respondents agreed with the assertion.
Mobile phone banking was evidently found complicated by the many players in the operation. In
the assertion, many players in mobile banking make the process complicated, the researcher
found 33.3% and 2.1% of the respondents strongly agreed with the assertion.

5.2.5 Effect of challenges faced by mobile phone banking on traditional banking

transactions
It was agreeable among majority of respondents that mobile phone banking was often faced by
network failures. In the assertion, Mobile phone banking is often faced by failure of network
systems “54.2% majority of respondents agreed with the assertion. In the assertion ‘mobile
phone banking is more perceived to be a substitute of bank accounts rather than a compliment”
41.7% majority of respondents disagreed with the assertion indicating that mobile phone banking
45
was not substituting traditional banking. Though mobile phone banking was previously termed
as user friendly technology .It was agreeable among majority (40.4%) that its reliability was
being eluded by systems failure. This concurs with findings in the literature by Pelowski (2010)
who indicate that a system failure was among the major challenges faced by mobile phone
banking.

Mobile phone banking is entrusted to agents whose integrity cannot be strictly regulated, this is a
situation that majority (41.7%) agreed with implicating a challenge within mobile phone banking
which will continue to attract customers to traditional banking. It was also agreeable among
52.1% majority of respondents that banks cannot control the process of mobile banking
efficiently. Lack of clear regulatory framework in mobile phone banking was found to affect
both the banks and customers as well. Majority (47.9%) were in agreement that lack of clear
regulatory framework posed a risk to banks as well as customers.

5.3 Conclusion

Mobile phone banking can be said to have transformed the way banking activities are
undertaken. This has been through introduction of new products and services that as per these
study findings include cash transfers, payment of bills and account statements and deposits.
Although such innovations my not have replaced traditional banking, they have to some extent
influenced the way traditional banking is undertaken. Mobile phone banking can be said to be
increasing banking transactions, one would therefore conclude that most this increase in
transactions is more associated to those that are associated with mobile phone banking rather
than traditional banking. There is evidence that traditional banking is still taking place especially
for deposits and withdrawals from bank accounts .This may be a good signal that mobile phone
banking is not replacing traditional banking but rather modifying the process.

It is evident that customers are aware of mobile phone banking and how to use the technology.
Thus mobile phone banking presents itself as user friendly technology signaling a likelihood of
high adoption among customers. Mobile banking technology presents an innovative technology
with attributes such as easy access, timeliness and cost saving nature, attributes that favour
technology acceptance according to Rodger, 1995. Such favorable attributes of adoption may be
assumed to be behind the force of attracting mobile phone technology that could lead to a

46
decrease in traditional banking. Mobile phone banking has is seemingly not winning the security
trust amongst customers. This might be the reason as to why it is not possible for it to completely
replace traditional banking. Cost may or may not be a consideration among customers on
whether or not to adopt mobile phone banking. This could imply that customer would either
chose mobile phone banking or traditional banking based on other considertations other than
cost.

Banks do not consider mobile phone banking a risky business model, however they exercise
caution in the use of mobile banking technology. One would therefore reason that failure to
phase out traditional banking was among the cautions that banking institutions were likely to
take towards shielding against unpredictable occurrence in mobile phone banking. This would
therefore mean that traditional banking transactions may remain constant despite introduction of
mobile phone banking .There was no conclusive evidence that risks in mobile phone banking
were associated with uptake of mobile phone technology among banking institution and further
impacted on traditional mobile banking. Multiple players in mobile banking phone banking
process poses a challenge to banking institutions and may force banking institutions.

Mobile phone banking is faced with myriad of challenges as established in this study. Among the
common challenges include network failures, lack trust for agents entrusted to do mobile phone
banking on behalf of banking institutions. In a scenario, where banks find challenges of mobile
phone banking, it is likely that customers will prefer traditional banking way thus implicating an
increase in transactions.

5.4 Recommendation

After successful completion of the study, the researcher recommends that;

1. The government should have a clear regulatory framework in order to improve the level
of confidence among banking institutions in the new technology .This would increase the
level of adoption among customers as well as banking institutions.
2. With the hurdles involved in mobile phone banking it is not possible for banking
institutions to replace traditional banking; it is therefore recommended that banking
institutions reconsider investing in risk and compliance functions to save them on major

47
 losses especially loss resulting from theft of data and fraud. This will increase the level of
trust among customers and mobile banking agents as a way of revolutionizing the way
banking is done. Also, it would encourage customers to increase their deposits as well as
cash withdrawals which characterize traditional banking.

5.5 Suggestion for further studies

A further study should be undertaken on effects of mobile phone banking challenges on uptake
of mobile banking among customers.

48
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 APPENDICES

Appendix I: Interview guide

RE: LETTER OF TRANSMITTAL

Dear Respondent
This interview is aimed at gathering primary data on the mobile banking and banking transaction
in Kenya’s banking institutions. You are kindly requested to fill in the questions depending on
the instructions given. The information you provide will be treated with utmost confidentiality
and will be used for the purpose of accomplishing academic goals. Do not include your name
anywhere in the questionnaire. Note that there are no wrong or right answers.

PART A: Background information

1. How long have your worked in this bank?
a. 1-5 years
b. 5-10 Years
c. 10-15 years
d. Over 15 years
2. Please indicate your category of work in this banking institution?
a. Top management
b. Middle level management
c. Lower level management
d. Marketing executive

PART B: Mobile phone banking and traditional banking transactions

3. Please indicate some of the new products and services that your bank has initiated as a
result of mobile banking
a. Cash transfers
b. Payment of bills
c. Account statements

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 d. Account opening process
e. Deposits
f. Withdrawals
g. Others (Please specify)……………………………………………………
4. Do you think mobile phone banking is replacing traditional banking methods
Yes
No
Kindly explain
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

The following statements indicate statement indicate relationships between adoption of mobile
phone banking technology by banks ,customers and the challenges faced with banking
transactions . Please indicate the extent of agreement with the statements using; 1- Strongly
agree (SA), 2- Agree (A) 3- Neutral (N), 4- Disagree (D), 5- Strongly Disagree (SD)

Statement 1-SA 2- A 3- N 4-D SD

Products and services linked to mobile phone banking
1. There are more transactions
undertaken as a result of adopting
mobile phone banking
2. More customers are paying bills
through their mobile phones
3. We have increased accounts portfolio
due to use of mobile phone money
transfers of cash
4. There has been more cash and
deposit withdrawals as a result of
adopting mobile phone banking

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5. There is a noticeable change in
transactions based on mobile phone
banking technology
6. Mobile phone banking has enabled
the banks to reach out to the
unbanked population
7. Mobile phone banking has yielded
positive reaction among consumers
8. We offer savings and overdraft
services using mobile phone banking
9. We have expanded to branchless
banking as a result of mobile phone
banking
Trends in adoption of mobile phone banking among customers
10. Most customers are not aware of
how to use mobile banking
11. Complexity of mobile phone banking
has slowed down the process of
adopting the technology
12. Easy access, timeliness and cost
saving nature of mobile banking has
led to it increased adoption among
consumers
13. Customers feel secure while using
mobile phone banking
14. Many customers have little trust for
mobile phone banking
15. Most customers adopt mobile phone
banking based on cost considerations

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 Trends in adoption of mobile phone banking by banks
16. Banks have invested in mobile
banking systems because it is a
profitable venture
17. Banks find mobile banking to be a
risky business model
18. Poor clarity in regulatory measures
on mobile phone banking demand
caution before undertaking the
technology
19. The changing landscape of wireless
banking has encouraged uptake of
mobile banking technology among
banks
20. Banks have increased partnership
with mobile phone service providers
to enhance mobile phone banking
21. Banks have increased focus on
outsourcing to embrace mobile phone
banking
22. Risks involved in mobile phone
banking have led to slower adoption
by banks
23. Banks have put strategic choices
towards countering the challenges of
mobile phone banking
24. Banks do not perceive mobile phone
service providers as threat , but
partners in business
25. Many players in mobile banking
makes it a complicated process

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 Challenges faced by mobile phone banking
26. Mobile phone banking is often faced
by failure of network systems
27. Mobile banking is more perceived to
be a substitute of bank accounts
rather than complement
28. System failure has eluded the
reliability of mobile phone banking
29. Mobile phone banking is entrusted to
agents whose integrity cannot be
strictly regulated
30. Banks cannot control the process of
mobile banking efficiently because
they have no control over the whole
process
31. Lack of clear regulatory framework
in mobile phone banking poses a risk
to banks and customers

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Appendix II: Work Plan

ACTIVITY February - March March- April May - June

Concept and
proposal
development
Defense and
amendments of
proposal
Testing of
research
instruments
Data collection
and analysis
Report writing
Amendments of
the report
Submission of
final report

57