Is the evolution of Fintech complementary to bank performance in Kenya?

This study examined the impact of fintech/digital financial services on bank performance by tiers in the period before and after interest rate controls in Kenya using both primary and secondary data. The findings from the secondary data show that digital financial services positively and significantly affect the performance of large banks in both periods but positively and significantly affect medium-sized banks only in the interest rate capping period and negatively and significantly affect small-sized in the period after caps. Analysis from the primary data shows that commercial banks still dominate the financial landscape with digital loan services constituting less than 1 percent of the entire loans in the financial system but the provision of loans by non-bank actors is growing. However the non-bank credit only provides loans at very high-interest rates averaging about 70 percent per annum compared to 10-20 percent offered by commercial banks. Majority of the commercial bank respondents viewed digital financial services as complementary to enhancement of efficiency and scope of financial products and services. The results imply the need for devising strategies that avoid further financial exclusion of the low-income earners who may not afford smartphones, may not have access to internet or may be unfamiliar with smartphone features. Non-bank credit only providers have diverse sources of funds, thus, there is need to understand the implications of alternative sources of funds outside the domestic banking system. Further, the results imply a need to design and implement strategies to equip customers with adequate information including closing the gap between technology and people.