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Business & Marketing
Research Proposal
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Effect of E-Banking on Operating Costs of Commercial Banks in Kenya (Research Proposal Sample)


The main purpose of the study will to assess the effect of e-banking on operating costs
of commercial banks in Kenya.
i. To assess the effect of using Automated teller machines (ATM) on operating
costs of commercial banks in Kenya.
ii. To assess the effect of mobile banking on operating costs of commercial banks
in Kenya.
iii. To assess the effect of internet banking on operating costs of commercial
banks in Kenya.


In the year 1993, that is when the concept of E-banking was first launched. This was done in United Kingdom from which further developments began. Later, Nottingham Building Society (NBS) introduced a unique system called Home link that enabled its customers to pay bills and transfer money through the telephone and TV set. Consequently, financial lending institutions adopted the technology at a fast late with most of them using it until today. Banks have now launched websites, mobile applications and other platforms to allow their customers to transact at the press of a button. (Emile, 2014)
The banking industry in Kenya just like other parts of the world has evolved from the ancient practices to modern procedures that have resulted to the major transformation of the sector’s products and services. According to Heyer & King (2015), the number of persons who have not adopted the technology have reduce tremendously as the rate of adoption has increase over the years.
The proportion of adults holding financial accounts in Kenya hit 82% in 2017, the highest in Sub-Saharan Africa brought about by efficient mobile money systems (Shapshak, 2018). It has been hypothesized that financial access is directly relate to poverty and inequality issues. Use of ICT tools like mobile and the internet have led to increase adoption of e-banking technology hence making transfer easy and convenient (Yong, 2018). The ultimate goal of increase financial circulation has been economic development which has led to increase campaigns and support by most governments. In addition, it has been seen to lead to environmental protection thus supporting sustainability (Koivu, 2002).
Despite having the high rate of adoption, all technological advances are faced with challenges along the adoption process. A critical challenge has been on issues of security as people are afraid of cybercrime. Security threats have seen banks investing in systems that are responsive towards security requirements without compromising on the convenience and delivery of the electronic platforms. In order to protect consumers and increase their confidence, institutions have been developed by governments to showcase the security problems and device strategies to fight with the different issues as they arise. Therefore, the systems over time have been strengthened on bases of access and confidentiality. The milestones achieved however outweigh the threats and challenges faced in the E- banking evolution. Research has shown that technological change has resulted to revolution and changes in the economic and political systems. Finance and banking sector has probably been one of the most revolutionized sectors in the wake of technology (Jin and Fei-Cheng, 2005).
1.1.1 E- BANKING
Daniels & Sathye (1999) argues that the definition could vary in different aspects but generally would be seen as a system through which clients can make enquiring and transact. In most cases, transactions are retail in nature through computers and mobile phones. Hiltunen Heng (2004) on the other had argues it is a system through which bank information can be delivered to its clients. The clients can make use of different platforms including mobile, computers and digital television.
Basel Committee on banking supervision (2003) also gives a brief definition where they argue that a system through which people are able to get retail banking services could sum to E-banking technology. The clients are able to make there transfers electronically. FINcen (2000) broadens the view by arguing the term umbrella. He argues that the technology covers all banking services in one package through which clients can transact. Panida & Sunsern (2012) gives a more details and confirmed definition. They suggest that the technology creates a platform through which clients are able to gain access to their accounts and other bank services without assistance from bank employees. They add to give the advantages of the technology including; convenience, fast and secure.
However, despite having broad and narrow definition, little has been done with respect to the platforms through which clients access the bank services. Research has shown that major platforms used include; Internet banking mobile banking and Automated teller machines (ATMs) which the current study will give analysis on.
Sathye (1999) in his analysis revealed that internet banking helped clients access their accounts, make transfers and buy other bank services using the internet. A mobile survey that was conducted by mobile banking Survey (2014) also showed that mobile banking helped client’s access data and transact using mobile phones. Kagan (2019) defined ATMs as electronic devices through which customers are able to transact any time without direct intervention by the bank employees.
A company’s operating costs are expenses related to the production of its products and services. Examples include wages, research and development, cost of raw materials (Kenton, 2019)
Operating costs refer to necessary expenses for the normal day-to-day running of an entity. This is reflected in the statement of profit and loss so as to help reach on the firms operating prodit (Murphy, 2019)
Operating costs of a bank include employee compensation and benefits, legal fees, consulting services, stationery costs, postage costs, expenses associated with maintenance of bank premises and other fixed assets (Kovner, 2015).
Commercial banks just like other profit making enterprises have cost minimization and efficiency as one of their main goals as this has a direct impact on the economic performance and shareholders wealth maximization goal. The advent of the innovation has led to emergence of new ways of managing costs to achieve reduced levels while not compromising on the value of products and services offered. Under this circumstance, it has been realized that earlier techniques on cost accounting have not provided sufficient reductions thereby giving popularity to the concept of strategic costs management (SCM). Cooper & Slagmulder (2004) described the technique as on that integrates costs techniques and thus help firms be strategically positioned as well as be able to manage costs efficiently.
The link between technological innovation and operational management can be seen as a result to raised number of customers, transactions, efficiency, quality and profitability (Ngugi & Katrina, 2013)
Technological innovation is considered as the main banking revolution driver of the 21st century since it has enabled commercial banks to reach more markets, enhance profitability, offered more innovations inform of advanced and flexible products and services. This has been seen to reduce the costs as well as increase profits. The innovation has been see to reach a wide coverage due to increased demand by consumers. Institutions have launched use campaigns as this has increased competition in the industry. Most banks have used the innovation to gain a competitive edge over the others, raise their profits and offer services more conveniently to their clients. Acharya & Kagan (2004) revealed that the innovation was capable to reducing marketing costs, raise profits as well as offer credible services to consumers.
Profit and wealth maximization has been the major drives for firms to adopt the innovation (Simpson, 2002). In addition, use the institutions have been driven by the fast transfer with little engagement and overall cost reduction. However, other researchers have found that increased demand had no direct consequent cost reduction on the part of the banks (Masila, 2009)
In Kenya, there are forty (40) authorized banks. They are held with the responsibility of financial service provision. It has been reported that about 82.9% of adult population in the county are into function with this institutions for financial assistance. In the recent decade, the industry has digitized. The highly adopted platform has been use of mobile phones. In the year 2018, about 79.4% of the adults using financial institutions had taken up the innovation. The main push factors into taking up innovations has been on bases of reaching a competitive edge and improvement of efficiency. Cytton (2019) in his analysis however realized that the transactions using the innovations were limited on bases of security.
Commercial banks have reduced front office operations thereby reducing the staff requirement and by extension reducing operating costs and improving operational efficiency. (Cytton, 2019).
Among the recent notable technological events include pesalink. This platform is managed by Kenya bankers association (KBA). CBK (2018) report shows that through this platform, one can make transfers using their mobile form one point to the other.
The central bank commenced the introduction of the new generation bank notes in June 2019 after the issuance of redesigned coins in the second phase of the country’s transition to the new currency. (KBA, 2019)
The suspension of section33 (b) 1 & 2 of the banking Act for a period of 12 months beginning March, 2019. The section make regulation through which lending cannot be effected above the set 4% base by CBK. It also provides a minimum rate of interest to being 70%. The section of law was passed in 2016 to address the high costs of credit in the country. The CBK and the commercial banks in Kenya have however been against the section pointing out its adverse effects on the economy (Macharia, 2...

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