Abstract

The purpose for this study is “to examine the effect of Digital Technology on Financial Performance of Commercial Bank in Cameroon: the Case of Ecobank in Buea”. Its specific objectives are to evaluate the effect of Automated Teller Machines on the financial performance of commercial banks in Buea, to examine the effect of Mobile Banking on the financial performance of commercial banks in Buea and to examine the effect of Internet Banking on the financial performance of commercial banks in Buea.

The research employed descriptive research designs. It also combined quantitative as well as qualitative research approaches. This research uses a sample size of 50 respondents. Questionnaires were used in data collection and the data were analysed using analysed using descriptive statistics and the multiple regression analysis (Ordinary least square Regression technique) with the help of Statistical Package for Social Sciences (SPSS) software. The findings show that Digital Technology has a significant impact on the Financial Performance of Commercial Bank in Cameroon.

Automated teller machine has a negative and significant effect whereas mobile banking and internet banking has a positive and significant effect on the financial performance of commercial bank in Cameroon. The study therefore recommended that, effective application of digital technology should put in place so as to increase the financial performance of commercial bank in Cameroon.

The study also recommends that management should build a strong relationship with their customers based on automated teller machine, mobile banking and internet banking so as to build positive relationship with the financial performance and operations.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In the past few years there has been constant rate in which the state of development have been taking place, the global financial and banking sector has undertaken radical changes and improvements (Gartner, 2016).

The process of technology adoption have brought banking industry new various business models, areas of improvements and development concepts as a result of internet banking to monetary transactions (Schumann & Tittmann, 2015).

Emerging implementations to financial sector needs the employees to know of the dynamics relating to work environment in addition to overall state of change in the financial sector. Digitalization is among the main turbulence that is causing a change in the banking business to the foreseeable future and with bad management, the implications can be having a long lasting effect (Schinkel, 2010).

Globally the financial and banking sectors are growing faster than previously and hence digitalization is at a vital position on how to acquire a gain on market advantage against the rivaling banks (Gartner, 2016).

Considering the neo age of technology adoption in banking sector, the daily operations are becoming easier for customers to use; faster and cheaper hence every bank is grasping to adjust their own operations to fit the needs of a demanding customer (Olanrewaju, Smaje & Willmott, 2014).

In the 1980’s when computers were introduced, this was said to be the start of the digitalization in the consumer markets. This opened new channels to the consumers to become more communal and aware of civil democratic issues than previously (Gartner, 2016).

Currently technology and digitalization have extracted hindrances of the modern society, this includes aspects such as; involvement, time, data acquirement and space which grants consumers more freedom to have interactions with various parties regardless of space or even time (Koiranen, Räsänen & Södergård, 2010).

Also the process of digitalization is a business gap for the banks to step up their business activities. As a result of digitalization and advancement in technology the interaction between banks and official authorities towards the consumers and citizens has also been intensified and have made new ways of reaching to one another.

This can be seen easily in the commercial banking sector, where digitalization has given the banks additional ways to reaching out to potential customers and also at the same time to give them a hand to improve their services (Gartner, 2016).

The Internet and mobile banking has become the single largest channel at the moment for reaching customers and for customers to handle their bank transactions (Deutsche Bank, 2016). As shown in the statistics by Deutsche Bank in 2016, almost 20% of customers of international banks use internet banking daily and 10% of customers use mobile banks on a daily basis, whereas only 4% use branch services on a daily basis and almost 37% of customers say that they rarely or never use the call centers.

Equally, as illustrated by the Statistics in Finland for the year 2015 in Finland 98% of the young people aged between 25-34 years indicated to have used internet for purpose of internet banking which this was the largest age group to do so.

On the other hand the lowest group was made up of people aged between 75-89 year olds of which only 26% indicated to have used the internet for various bank transactions in a period of past three months. In accordance to the same research 95% of the working population in Finland indicated to have used internet banking services for the last three months (Statistics Finland, 2015). Through studying these statistics it becomes a clear observation that via mobile banking services and internet banks are reaching the majority of the people.

The banks up-to-date means of reaching out to their customers are becoming affordable for them and easier than the previous older ways (Pohjola 2015). The number of specific bank branches is reducing and additional services shifting to be on online form, more so to the daily banking services, such as investment negotiations and loans processing (Pohjola 2015).

Also digitalization has coined new opportunities towards service providers giving them fresh business models, such as the banks who do not have any physical branches but rather work on a mobile platform.

Take an example, Atom Bank which is a bank based on United Kingdom, the bank only works on a mobile platform. Atom Bank lacks any physical branches for customers to visit but all its operations are doing their tasks on a mobile phone and one can open a bank account using a mobile phone (Atom Bank, 2016).

In Africa continent the digitalization impacts on the financial sector can easily be attributed to the amount of people using internet banking for settling their bills because it is the major factor for the average people banking errands (Pohjola 2015). Like other industries, commercial banks and financial sector are increasingly molding to new shape this is because of the rapid improvements to digitalization and technology.

The trail of digitalization in commercial banking and financial sector in Africa is heavily impacting towards cost-saving potential and also creating fresh revenue sources (Olanrewaju, 2014). The advancements that digitalization has had on financial sector so far are mainly to daily banking services and to no-knowledge-intensive services, such as payments solutions and internet banking.

These services were no big deal to standardize and according to big banks, these solutions lowered the customer’s frequent visit to banks. According to Barclays Bank Africa, which was one of the pioneer banks to see the potential in digitalization and digital banks, after they shifted to online and mobile banks, their customers now visit the bank’s branches two times a month on average, and the rest of the days they use services of mobile banking eighteen times per month (Deutsche Bank, 2016).

Commercial banks have adopted service digitalization through use of mobile banking automation, internet banking and personal finance management tools (Cytonn, 2017). Nyangosi (2008) noted that many Kenyan banks have come up with mobile banking, online banking together with other electronic banking services to boost means of reaching out to distributed consumers with the intent to enhancing accessibility and affordability of financial services to the unbanked population.

The automated teller machines which are computerized customers with a mode of financial telecommunications devises provide banks transactions in a public place where they don t interact with bank staff. Automated teller machines are used for cash withdrawals, cash deposit, balance enquiry generating mini-statement etc. Online banking refers to banking services being delivered over the internet while mobile banking at involves the delivery of a financial service using mobile phones through a mobile network (Cronin and Taylor, 2008).

Through service digitalization banks have enjoyed improved efficiency, cost savings, faster processes both internally and externally and accurate performance that is reliable. There has been improved customer experience as transactions can be done at any time using mobile banking and online banking platforms There has been increased outreach to customers due to increased banking convenience and increased productivity as more tasks can be accomplished in less time (Nyąngosi, 2008).

Organizational performance is the achievement by a firm seen through measures such as achieved targets, the achievement time, enhanced efficiency and improved effectiveness. This is evaluated by use of both financial and non-financial terms. According to Ramanujam and Venkatraman (1986) performance can be measured through financials such as return on a firm s investment, growth of sales and profit over a defined period, organization effectiveness and overall business performance. Financial performance can be measured through evaluation of efficiency and effectiveness of controls that result in cost savings.

On the other hand, evaluation using non-financial terms can be achieved through analysis of quality of goods and services offered customer satisfaction, retention and loyalty. According to the study conducted by Arora and Nyangosi (2008), automated teller machines (ATMs) is among the most widespread optional means of developing countries. It was noted that automated teller machines (ATMs) have gained popularity among services because of their convenience, providing customers with around the clock access to banking services. Mobile banking has also gained popularity over the recent years as 1t offers convenient accessible banking alternatives.

The presence of the mobile phone based technology has resulted in banks investing largely in their Information and Communication Technology (ICT) platforms in order to remain competitive. Intensive Information and Communication Technology platforms have contributed largely towards financial institutions acting towards the demand needs of the increasing middle class population through provision of electronic based banking services taking an example of internet banking and mobile banking. The Central bank and Commercial banks in Cameroon include AFRILAND FIRST BANK, ATLANTIC BANK CAMEROON,BIECE, BGF BANK,SCB BANK, CITI BANK, ECO BANK, COMMERCIAL BANK OF CAMEROON, NFC BANK, SGBC, UBC, UBA, ASCA. This study focuses on the financial performance of ECOBANK.

1.2 Statement of the Problem

Globally, digitalization of various businesses has become their cornerstone and backbone for the financial sector. Businesses are therefore investing in technological platforms in order to become a part of this new digital age.

Information and Communication Technology (ICT)  enables banks to develop sophisticated products, implement reliable techniques for risks mitigation, to reach geographically distant and diversified markets (Cecilia, 2013).

Banks which have been expanding their infrastructure with an aim for higher financial presence have by a far extent become more successful. Additional branches of the bank more so to the rural areas and growing urban areas, automated teller machines (ATMs) and bank agents located in locations that are remote have been together giving higher returns and also providing a business gap that is exploited for doing viable business (Njuguna, Armando, & Lydia, June 2016).

Furthermore, the end of the great depression of 2007 has forced the banking industry to begin a process of fostering changes. Novel Business models based on technological advancements are challenging the existence of a long established and traditional industry (Ketterer, 2017). Perpetual vision engineered by performance orientation is a mandatory element for all businesses that operate for profit motives.

Competition in the banking sector is toughening as days go by and without the introduction of new technologies into service mechanisms, even the strongest banks with a conservative strategy will lose a significant part of their customers and consequently their profit levels will shrink. As such digital financial services have become a major topic for banks all over the world.

Belous and Lyalkov (2017) as cited in Galazova and Magnomaeva (2019) noted that by 2020 more than 20% of businesses in the financial service industry will be at risk due to the impact of the Financial Technology (FinTech) segment. This is because the traditional banking system has not been able to solve the modern day problem of low profit levels of commercial banks eroded by the stiff competition coming especially from the financial institutions.

Lately, financial institutions have identified sustainability to be an important part of their projects which implies sustainable banking is a strong response to financial slumps. A change from traditional deposit taking and lending towards investments based on revenues from fee and commission services may be the answer to this challenge as commercial banks profit levels sink.

Given the presence of many other non-banking financial institutions rendering similar banking services, the amount of profits commercial banks made in the yesteryears have been reduced drastically by these institutions. This is due to the inability of the traditional banking system to make sufficient profit so as to withstand the prevailing competition.

This is an indication that the traditional banking activities may no longer permit commercial banks to meet up with the unending and sophisticated demands from customers, to make sufficient profit in order to maximize shareholder’s wealth, to respect regulatory limit of bank activities and the need to make sufficient profit for sustainability.

It is from this backdrop that this study seeks to find out whether the adoption of digital banking services by commercial banks can serve as a solution to improve commercial bank’s performance since the traditional banking system has remained dwarf in this aspect.

1.3 Research Questions

1.3.1 Main Question

What is the effect of digital technology on the financial performance of commercial banks in Buea?

1.3.2 Specific Questions

1. What is the effect of Automated Teller Machines on the financial performance of commercial banks in Buea?
2. To what extent does Mobile Banking affect the financial performance of commercial banks in Buea?
3. How Internet Banking does affect the financial performance of commercial banks in Buea?

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