EFFECT OF FINANCIAL INNOVATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN MOMBASA COUNTY, KENYA

: The general objective of this study was to establish the effects of financial innovation on financial performance of commercial banks in Mombasa County, Kenya. The specific objectives of the study were; to determine the effect of internet banking innovation on financial performance of commercial banks in Mombasa County, Kenya, to explore the effect of agency banking innovation on financial performance of commercial banks in Mombasa County, Kenya, to assess the effect of ATM Banking innovation on financial performance of commercial banks in Mombasa County, Kenya and to establish the effect of mobile banking innovation on financial performance of commercial banks in Mombasa County, Kenya. The theoretical framework of the study consisted of Diffusion of Innovations Theory, Unified Theory of Acceptance and Use of Technology (UTAUT), Bank-Led Theory and Financial Intermediation Theory. This research adopted a cross-sectional survey research design aimed at collecting large number of qualitative and quantitative data at a point in time to address the formulated hypotheses. Stratified sampling technique was used to select sample size of 153 respondents from the target population of 248 respondents in commercial banks in Mombasa County, Kenya. Primary data was collected by use of self-administered structured questionnaires which was distributed through the drop and pick method. The secondary data collected was used to cross validate the primary data results. The collected data was analyzed quantitatively and qualitatively. Descriptive and inferential statistics was done using Statistical Package for Social Sciences (SPSS) version 24 and specifically multiple regression model was used for hypotheses testing. Set of data was described using percentage, mean standard deviation and coefficient of variation and presented using tables, charts and graphs. The study revealed that financial innovations had a statistically significant effect on financial performance of commercial banks in Mombasa County. Internet Banking Innovation had a statistically significant effect on financial performance of commercial banks in Mombasa County. Agency Banking Innovation had a statistically significant effect on financial performance of commercial banks in Mombasa County. ATM Banking Innovation had a statistically significant effect financial performance of commercial banks in Mombasa County. Mobile Banking Innovation had a statistically significant effect on financial performance of commercial banks in Mombasa County. The study recommended that managers in commercial banks should adopt financial innovations so as to boost their financial performance. 2) The second research hypothesis, H 0 2 : Agency banking innovation has no statistically significant effect on financial performance of commercial banks in Mombasa County, Kenya (β = 0.460; t = 5.488; p ≤ 0.05) was rejected and conclusion made that there was a statistically significant effect of agency banking innovation on financial performance of commercial banks in Mombasa County, Kenya. This is consistent with Kithuka (2012) who sought to establish the factors influencing growth of agency banking in Kenya. The study sampled 100 Equity Bank agencies doing bank focused, bank led, and non-bank led transactions in Kwale County. The study established that convenience of the money transfer technology plus its accessibility, cost, support and security influence the use of agency banking. 3) The third research hypothesis, H 0 3 : ATM banking innovation has no statistically significant effect on financial performance of commercial banks in Mombasa County, Kenya (β = 0.095; t = 2.998; p ≤ 0.05) was rejected and conclusion made that there was a statistically significant effect of ATM banking innovation on financial performance of commercial banks in Mombasa County, Kenya. This is consistent with Hussein and Nyaoga (2017) who studied the effect of automated teller machines usage on operational performance of commercial banks in Nakuru County and established a significant positive relationship between automated teller machines usage and operational performance, the study also revealed a significant positive relationship between internet banking and operational performance; further the study also revealed a significant positive relationship between mobile banking and operational performance. The findings revealed that the combined effect of SST on operational performance was significant. The findings also revealed that among the SST, mobile banking had the greatest relationship with operational performance. 4) The fourth research hypothesis, H 0 4 : Mobile banking innovation has no statistically significant effect on financial performance of commercial banks in Mombasa County, Kenya (β = 0.465; t = 5.947; p ≤ 0.05) was rejected and conclusion made that there was a statistically significant effect of mobile banking innovation on financial financial performance of commercial banks in Mombasa County-Kenya. The findings revealed that internet banking privacy, internet banking security and internet banking costs had a very strong effect on the financial performance of commercial banks in Mombasa County-Kenya. Thus the study results exhibited a high degree of positive significance on effect of internet banking innovation on financial performance of commercial banks in Mombasa County-Kenya. Majority of respondents as key determinants of banking and thus helping which in turn spurs financial performance of commercial in Mombasa County-Kenya. The findings revealed agency banking accessibility, agency banking costs and agency banking security had a very strong effect on the financial performance of commercial in County-Kenya. Thus the study results exhibited a high degree of positive significance on the effect of agency banking innovation on financial performance of commercial banks in Mombasa County-Kenya. a very strong effect on the financial performance of commercial banks in Mombasa County-Kenya. Thus from the study results it was generally concluded that there was a high degree of positive significance on the effect of agency banking innovation on financial performance of commercial banks in Mombasa County-Kenya.