Effect of Adoption of Agency Banking on Bank Performance :

Abstract

Agency banking is a recent phenomenon that allows customers to conduct banking transactions with a mobile phone or point of sale. The main purpose of this study was to investigate the effects of adoption of agency banking on bank performance. Studies indicate that the effects of agency banking on the financial performance of commercial banks in Kenya is positive and that there is relationship between accessibility of banking services, low cost of service and customer and customer transactions as a result of agency banking. Kenyans are yet to appreciate agency banking services as compared to the use of mobile banking. The study was guided by the following objectives; to determine the effects of agency banking administrative challenges on bank performance; to determine the effect of agency banking reliability on bank performance and; to ascertain the effect of agency banking operational challenges on bank performance. The study focused on four selected commercial banks, that is, Kenya Commercial bank, Cooperative bank, Equity bank and Family bank. Probability statistical research design was used and the study used a sample size of 44 respondents. The study employed purposive sampling to obtain the sample population because the target population had the same characteristics. Data was collected by use of questionnaires. The findings of the study revealed that agency banking improve financial performance of commercial banks since it lowers operational costs and increases income. Agency banking also improves bank efficiency and reduces costs of provisioning implying that it leads to improved profitability. 65% of the respondents reported that agency banking improves bank performance. Profits are earned from the charges for agency banking payments, products and services increasing banks revenue and improve cash deposits. The study found out that agency banking saves time on bank transactions hence attracting more customers which at the end elevates the banks financial performance. However, many agents were not conversant with the performance measures which would enable them perform better and actually determine how they were performing. This could be because some agents were primary and secondary school graduates, this could also mean that Central Bank of Kenya did not offer training on different aspects of banking to the agents. The study therefore concluded that agency banking had a positive effect on the bank’s financial performance. However, the effect is dependant of the reliability of the systems used, the skills of the agents, the infrastructure support, competition, requirements and guidelines for agency banking and network availability. Availability of resources was also found to have an impact on the financial performance. Any of this can affect the performance either positively or negatively. The study also concluded that CBK was yet to fully support the agents by offering training on various banking aspects and also impose friendlier guidelines and requirements which were found to be limiting by some agents. Based on the findings, the study made recommendations particularly directed to commercial banks management, academicians and policymakers. The study recommended that policy makers heighten awareness to the public through regular open day forums, media and exhibitions on the need and use of agency banking, and develop strategies that will capture new customers. Banks should also be allocating more resources to most especially minimize liquidity problems. The study finally suggested further research on the effects of adoption of agency banking on other upcoming agencies for other commercial banks and microfinance institutions.