Adoption of Financial Innovations by Tier One Commercial Banks and Financial Deepening in Kenya
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It is envisaged that by 2030 Kenya will realize the three pillars of success that is social, economic and political development. These pillars are not likely to be achieved if the country adopts same way of doing things, thus innovations in all sector is vital. Innovation accelerates growth in all the three pillars and more so economy. Although bank innovations are of convincing importance when checked in terms of financial performance, the effect created by the innovation on financial deepening is still not clear. The general objective of the study was to establish the effect of the adoption of financial innovations by tier one commercial banks and financial deepening in Kenya. Specifically, the study sought to establish mobile, agency, automated teller machine and internet banking on financial deepening in Kenya. The study was based on diffusion theory of innovation and theory of financial deepening. The study adopted correlation research design. In the current study the target population composed of 6 banks in tier one. Census approach was used to select 6 tier one commercial banks from 2010 to 2018. Data was analysed using descriptive statistics, correlation analysis and multiple regression analysis with the aid of STATA 12. The regression coefficients were tested for significance using tstatistics at 5% confidence level. Diagnostic tests that conducted include auto correlation, multicollinearity, heteroscedasticity, fixed and random effects and normality. The study findings found that commercial banks in tier one had an average financial deepening of 16.61. Regression analysis revealed that mobile banking, agency banking, automatic teller banking and internet banking have positive and significant effect on financial deepening of tier one commercial banks in Kenya. There is need to take advantage of agency banking services especially in regions which have low mobile phone penetration and adopt agency banking services owing to proximity to banking agents. Data security should be provided to enhance authorization procedure when using automatic teller machines banking services.