Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Journal of Finance and Economics. 2020, 8(1), 13-20
DOI: 10.12691/jfe-8-1-3
Open AccessArticle

Technical Efficiency in the Kenyan Banking Sector: Influence of Fintech and Banks Collaboration

Davis Bundi Ntwiga1,

1School of Mathematics, University of Nairobi

Pub. Date: February 05, 2020

Cite this paper:
Davis Bundi Ntwiga. Technical Efficiency in the Kenyan Banking Sector: Influence of Fintech and Banks Collaboration. Journal of Finance and Economics. 2020; 8(1):13-20. doi: 10.12691/jfe-8-1-3


Efficient banks increase financial stability, intermediation and value to the shareholders. As Fintech innovations continue to alter the financial landscape in Kenya, banks will leverage on Fintech to enhance efficiency. This study investigates if Fintech and bank collaboration has an influence on efficiency in the banking sector. A two step data envelopment analysis is applied with input-orientation based on three intermediation dimension models. Efficiency scores are decomposed into technical, pure technical and scale efficiencies. Financial statement data from 2009-2018 for five banks with Fintech collaborations form the analysis. The study period is segmented into Pre-Fintech, 2009-2014 and Post Fintech, 2015-2018. Descriptive statistics summarize the data with Panel regression model testing the selected financial variables influence on efficiency of banks in the Pre-Post Fintech period. In the ten year period, technical inefficiency based on the three models for the Pre-Post Fintech period is failure to operate at the most productive scale, poor input utilization and managerial inefficiencies. For the Panel regression, loan intensity in model M1, return on asset in model M2, and cost of intermediation in model M3 had a significant and positive influence on technical efficiency. Fintech and banks collaboration has had a positive influence on efficiency in the Kenyan banking sector.

collaboration efficiency banks Fintech technical and data envelopment analysis

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit


[1]  Central Bank of Kenya. (2017). Bank supervision annual report 2017. Central Bank of Kenya, Nairobi/
[2]  Deloitte (2018). Closing the gap in Fintech collaboration: Overcoming obstacles to a symbiotic relationship. Deloitte Center for Financial Services/
[3]  Financial Stability Board. (2019). Fintech and market structure in financial services: Market developments and potential financial stability implications. Financial Stability Board (FSB).
[4]  Coetzee, J. (2018). Strategic implications of Fintech on South African retail banks. South African Journal of Economic and Management Sciences.
[5]  International Monetary Fund. (2019). Fintech in Sub-Saharan African countries: A game changer? African department, IMF Washington DC, USA
[6]  Vives, X. (2017). The impact of Fintech on banking. IESE Business School.
[7]  Ntwiga, D.B. (2018). Can Fintech shape the dynamics of consumer credit usage among the un(der) banked? Proceedings of the Kenya Bankers Association 7th Banking Research Conference, September 2018, Nairobi
[8]  Hu, Z., Ding, S., Li, S., Chen, L., and Yang, S. (2019). Adoption intention of Fintech services for bank users: An empirical examination with an extended technology acceptance model. Symmetry, 11, 340.
[9]  Accenture (2016). Fintech and the evolving landscape: Landing points for the industry. Accenture Financial Services, Accenture.
[10]  World Bank (2017). Bankers without borders. Global Financial Development Report 2017/2018. World Bank Group, Washington D.C
[11]  Ntwiga, D.B. (2019). Fintech and Bank collaboration: Does it influence efficiency in thebanking sector? Proceedings of the Kenya Bankers Association 8th Banking Research Conference, September 2019, Nairobi
[12]  Corbae, D., and Levine, R. (2018). Competition, stability and efficiency in financial markets. The National Bureau of Economic Research Working Paper.
[13]  Lema, T.Z. (2017). Determinants of bank technical efficiency: Evidence from commercial banks in Ethiopia. Cogent Business and Management, 4.
[14]  Yilmaz, A., and Gunes, N. (2015). Efficiency comparison of participation and conventional banking sectors in Turkey between 2007-2013. Procedia-Social and Behavioral Sciences, 195: 383-392. World Conference on Technology, innovation and Entrepreneurship.
[15]  Abel, S., and Le Roux, P. (2016). An evaluation of the cost and revenue efficiency of the banking sector in Zimbabwe. Economic Research Southern Africa ERSA Working paper 629.
[16]  Singh. D., and Fida, B.A. (2015). Technical efficiency and its determinants: An empirical study on banking sector of Oman. Problems and Perspectives in Management, 13 (1-1): 168-175.
[17]  Novickyte, L., and Drozdz, J. (2018). Measuring the efficiency in the Lithuanian banking sector: The DEA application. International Journal of Financial Studies, 6(37): 1: 15.
[18]  Abel, S., and Bara, A. (2017). Decomposition of the technical efficiency: Pure technical and scale efficiency of the financial system. Economic Research Southern Africa ERSA Working paper 683.
[19]  Molyneux, P., and Forbes, W. (1995). Market structure and performance in European banking. Applied Economics, 27:2, 155-159.
[20]  Demsetz, H. (1973). Industry structure, market rivalry and public policy. The Journal of Law and Economics, 16(1), 1-9.
[21]  Moyo, B. (2018). An analysis of competition, efficiency and soundness in the South African banking sector. Economic Research Southern Africa (ERSA) Working Paper No. 747.
[22]  Gubbins, P., and Totolo, E. (2018). Digital credit in Kenya: Evidence from demand side-survey. Financial Sector Deepening (FSD) Kenya.
[23]  Kenya Commercial Bank (2017). Integrated reports and financial statements 2017. Kenya Commercial Bank, Nairobi
[24]  Equity Bank (2017). Integrated report and financial statements 2017. Equity Group Holdings PLC, Nairobi.
[25]  Ky, Rugemintwari and Sauviat (2019). Is Fintech good for bank performance? The case of mobile money in the East African Community. LAPRe Bank Seminars.
[26]  International Monetary Fund. (2017). Fintech and financial services: Initial considerations. IMF Staff Discussion Note, Monetary and Capital Markets, Legal and strategy and Policy Review Departments
[27]  Ernst & Young. (2018). The future of Fintech and financial services: What’s the next big bet? Ernst & Young.
[28]  Titko, J., and Jureviciene, D. (2014). DEA application at cross-country benchmarking: Latvian vs. Lithuanian banking sector, 110: 1124-1135.
[29]  Xu, Z. (2011). Technical, pure technical and scale efficiency of China’s banking industry. 2011 International Conference on Information Management, Innovation Management and industrial Engineering, IEEE.
[30]  Thu Vu, H., and Turnell, S. (2010). Cost efficiency of the banking sector in Vietnam: A Bayesian stochastic frontier approach with regularity constraints. Asian Economic Journal, 24 (2): 115-139.
[31]  Charnes, Cooper and Rhodes. (1978). Measuring the efficiency of DMUs. European Journal of Operational Research, 2: 429-444.
[32]  Banker, Charnes and Cooper (1984). Some model for estimating technical and scale inefficiencies in DEA. Management Science, 30: 1078-1092.
[33]  Repkova, I. (2015). Banking efficiency determinants in the Czech banking sector. Procedia Economics and Finance, 23:191-196. 2nd Global Conference on Business, Economics, Management and Tourism, 30-31 October 2014, Prague, Czech Republic.
[34]  Zimkova, E. (2015). Technical efficiency and super-efficiency of the banking sector in Slovakia. Procedia Economics and Finance, 12: 780-787. Enterprise and the competitive environment conference, ECE 2014, 6-7 March 2014, Brno, Czech Republic.