EFFECTS OF ELECTRONIC ACCOUNTING ON EFFICIENCY OF OPERATIONS IN

BANKING SECTOR IN KENYA (A CASE STUDY OF EQUITY BANK)

BY

MUNGUTI KAMANDI

REGISTRATION NUMBER: 16/05745

NOVEMBER, 2019

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF THE BACHELOR OF COMMERCE ACCOUNTING OPTION DEGREE, KCA

UNIVERSITY
Declaration
This research proposal is my original work and has never been presented for a degree in any

other university.

Signature……………………… Date …………………………

Dedication
This proposal is affectionately dedicated to my parents for their unwavering support and constant
inspiration throughout the research. They have instilled in me the sense of determination and
discipline to undertake the task with enthusiast and fortitude. It is because of their unending love
that I was able to complete this proposal.

i
Acknowledgement
First and foremost, I am grateful to the Almighty God for his protection and unrelenting efforts
to bless me throughout my research work to complete the proposal successfully. I wish to
express my sincere gratitude to Dr. Geoffrey Njura for his continuous support and invaluable
guidance throughout the period I was writing this proposal. His vision, dynamism, motivation
and sincerity inspired me to present clear work as possible. I believe it was a privilege and honor
to study under his direction and I really appreciate what he offered me. I would also want to
acknowledge parents for striving to keep me at school and preparing me to face the future. I am
grateful for my brother and sister for their love, support, prayers and their understanding which
played an essential role in completion of this project. Lastly, I thank all friends who made this
proposal a success.

Table of Content

ii
s
Dedication.....................................................................................................................................i
Acknowledgement.......................................................................................................................ii
Definition of terms.......................................................................................................................v
List of abbreviations...................................................................................................................vi
Abstract............................................................................................................................................1
CHAPTER ONE..............................................................................................................................2
1.0 INTRODUCTION.....................................................................................................................2
1.2 Background of the study........................................................................................................2
1.3 Statement of the problem.......................................................................................................3
1.3 Research objectives................................................................................................................3
1.3.1 General objective................................................................................................................3
1.3.2 Specific objectives..............................................................................................................3
1.4 Research Questions................................................................................................................4
1.5 Justification of the study........................................................................................................4
1.6 Significance of the study........................................................................................................4
CHAPTER TWO.............................................................................................................................6
2.0 LITERATURE REVIEW......................................................................................................6
2.1 Introduction............................................................................................................................6
2.2 theoretical literature reviews..................................................................................................6
2.2.1 Technology Acceptance Model..........................................................................................6
2.2.2 Innovation diffusion theory (IDT)......................................................................................7
2.2.3 Theory of planned behavior................................................................................................7
2.3 Empirical literature review.....................................................................................................8
2.3.1 Strengths of Using Electronic Banking Systems................................................................8
2.3.2 Importance and Limitation of Computerized Banking.......................................................8
2.2.3 Financial Reporting, Bank and Account Reconciliation.....................................................9
2.4 Conceptual Framework..........................................................................................................9
CHAPTER THREE.......................................................................................................................10
3.0 RESEARCH METHODOLOGY.........................................................................................10
3.1 Introduction..........................................................................................................................10

iii
 3.2 Research Design...................................................................................................................10
3.3 Target population and sample frame....................................................................................10
3.4 Sample and Sampling Techniques.......................................................................................10
3.5 Instrumentation....................................................................................................................10
3.6 Data collection.....................................................................................................................11
3.7 Data Analysis and presentation techniques..........................................................................11
REFERENCES...........................................................................................................................12
APPENDICES...............................................................................................................................14

iv
Definition of terms
Electronic banking – Gikonyo (2014), defines electronic banking as a system of settling

transactions electronically by use of various electronic gadgets which may be POS, ATMs

etcetera,

Financial reporting – is the process which involves disclosing financial information regarding the

company’s performance to the stakeholders of the company.

Technology – Refers to skills, techniques, processes and methods used in producing goods or

services that are offered to customers.

v
List of abbreviations
POS – Point Of Sale

ATM – Automatic Teller Machine

MICR – Magnetic Ink Character Recognition

TAM – Technology acceptance Model

IDT – Innovation Diffusion Theory

SPSS - Statistical Package for Social Scientists

vi
Abstract
The primary objective of this study is to examine effects of electronic accounting on efficiency
of operations in banking sector in Kenya. This study will adopt descriptive research design
whereby the secondary data will be obtained from Equity bank holding group as well as reports
from various media groups. Micro soft excel will mostly be used to analyze data. Conversely,
primary data would be opinion questionnaire which would be administered to the respondents to
review their take on electronic banking. Among the respondents will be the employees of Equity
Bank and the customers of the bank as well. Nevertheless, regression analysis would be carried
out to investigate the significance of electronic accounting on improving the overall efficiency of
operations in Kenyan banks.

1
 CHAPTER ONE

1.0 INTRODUCTION
Prior to introduction of modern electronic banking methods, the operations of banks was being
done manually this entirely made the transaction slow as transactions were supposed to be posted
in various ledgers physically, additionally, the activities of money counting was done manually.
This process was not entirely accurate hence it could always result in human errors. With
evolution of electronic banking, Kenyan commercial banks have not lagged behind in adopting
this new banking system. However, emergence of electronic banking in Kenyan economy
resulted in a grief to some group of people especially civil servants, as one bank would inform
them that their salaries have been conveyed however when they confirmed from recipient bank
they were told that no funds have been received (Sathye, 2015). This chapter will discuss the
background of the study, the statement of problem, research objectives, and significance of the
study and the scope of the study.

1.2 Background of the study

Electronic banking in Kenya has been playing an indispensable role in economic growth of the
country besides increasing overall effectiveness and efficiency of activities in banking sector.
Computerized accounting systems have essentially overpowered traditional banking systems thus
becoming the backbone of the systems of the bank (Gikandi & Bloor, 2016). Banks heavily rely
on computers to undertake or rather execute various kinds of accounting transactions as well as
book keeping activities. Typically, the ability of banks to record and account for deposits and
withdrawals without a requisition to manually adjust accounts has revolutionized the activities of
many banks in Kenya. In banking, computers aid in processing financial information thus
helping the bankers in preparing the financial statements at the end accounting year.
Computerized accounting has revolutionized collection, organization, processing and
development of summary of transaction among various departments of the bank. It facilitates
effective analysis of huge amount of data through use of software thus smoothening banking
operations. This has been made possible by use of spreadsheets such as micro soft excel and
quick books. This made the accounting professions related to banking easier and automated as
opposed to prior to introduction of electronic banking. Introduction of electronic banking in

2
Kenya has streamlined various banking operations including electronic bank transfers,
emergence of smart cards, MICR Cheques, emergence of electronic home banking, circulation of
accounts program (Gikonyo, 2014). Generally, computerized accounting immensely promoted
the industry in various departments including sale and managerial departments of the sector
through programming of various operational and routine decisions. Furthermore, electronic
banking increased accuracy of transactions thus minimizing errors in clients’ or rather
customers’ transactions. Electronic banking transformed the nature of bankers work especially
responsibilities associated with front offices such as tellers and the likes. This reduced amount of
manual work undertaken by the staff members prior to its emergence as accounts can be opened
directly online without having to review account records.

1.3 Statement of the problem

Information technology advancement has ultimately resulted in electronic banking or rather
computerized banking operations within the country thus helping in developing credible and
trustworthy financial statements stimulating effective decision making among the stakeholders of
the baking sector. Prior to introduction of computerized banking, there was extensive problem in
banking sector for instance delays in paying cheques and problematic reporting procedures
which has subsequently resulted in adopting computerized banking. Further, electronic banking
was also introduced to provide answer in question related to long stay in banking halls as well as
loss of essential clients’ information due to unavailability of back up machines. However, for
effective functioning of electronic banking, good computing infrastructure, telecommunication
network and electricity are essential. Failure of any of the aforementioned elements may lead to
failure of the whole system.

1.3 Research objectives

1.3.1 General objective

The general objective of this study is to establish the implications of electronic banking in
increasing efficiency of operation in banking sector.

1.3.2 Specific objectives

a) To investigate the strengths of using electronic accounting systems in banking sector

3
 b) To analyze importance and limitation of computerized accounting on growth of banking
institutions
c) To identify the effects of electronic banking on financial reporting and bank and account
reconciliation of banks.

1.4 Research Questions

a) What the advantages and disadvantages of electronic banking over manual banking
procedures previously used in Equity Bank?
b) How is the efficiency of computerized accounting and electronic transaction processing
systems used by Equity Bank?
c) What major types of electronic payment systems and extent in which such activities are
used in banking sector in Kenya?
d) What are the major challenges faced by the banking sector while trying to adopt
computerized banking?

1.5 Justification of the study

According to Njogu (2014), electronic banking has increased efficiency of banking operations.
Firstly, emergence of electronic banking reduced the cost of operating banking institutions by
having minimal number of staff members within the banking halls. This can be evidenced by
introduction of introduction of automated teller machines alongside numerous e-banking mobile
applications which allow the users to transact at the comfort of their homes without having to
visit the premises of their banks. Electronic banking has aroused out of the quest of the
customers to be provided with faster and low cost means of transaction. Electronic banking
reduces the amount of time spend on banking halls. It provides convenient banking system by
allowing the users twenty-four hour access of their accounts as well as ability to complete any
transaction at their convenience. Additionally, electronic banking has increased privacy and
security to customers by use of encryption as well as security technology development. Bearing
that in mind, efficiency of banking operation need to be upheld and as a result I came up with
this proposal to justify the importance of having electronic banking in place.

1.6 Significance of the study

Evolution of electronic banking is major development in banking sector despite the fact that it
uncovers various strengths and weaknesses. Computerized banking systems have motivated

4
numerous economic agents as well as banks (Gikandi & Bloor, 2016). This proposal will seek to
advance knowledge in electronic banking alongside recommending further or rather future
studies in the area. This research would focus on examining benefits accrued by Equity bank by
adopting electronic banking. In addition to the risks the organization faces in implementing the
system. The information obtained will be of great importance to other banking institution who
have already adopted electronic banking and those who are yet to.

The study would greatly benefit scholars as well as students in accumulating knowledge and
equipping them with appropriate information regarding electronic banking systems. The research
proposal would analyze the challenges faced by Equity Bank and provide relevant
recommendations at various leadership levels to help in developing solution to improve the
situation stimulating the challenges. It will allow the managers to understand the importance of
computerized banking record keeping towards preparation of reliable and quality financial
statements (Njogu, 2014).

5
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction
In this section, the proposal discusses literature review which is segmented into section 2.2
which will highlight theoretical literature review, theoretical literature review which is
documented in in section 2.2 comprising of three theories. Empirical literature review which is
detailed under section 2.3, which will elaborate the three objectives of the study. Lastly, section
2.4 of literature review will explain the conceptual framework of the proposal.

2.2 theoretical literature reviews

Electronic banking is a diverse concept which has been defined differently by various
researchers and scholars. However, there is some consensus between the among the scholars that
electronic banking largely pertain services through which customers of a particular bank can
request information regarding their banking services through use of various devices including
computers or mobile devices. In this proposal, electronic banking has been termed as provision
of banking services and products via electronic channels. Some of obvious products included in
this setting include depositing and withdrawal of funds through use of one’s electronic wallet.
Electronic banking allows electronic payment and processing of bills, electronic money and the
likes.

In contemporary competitive Kenyan banking industry, many banks have adopted e-banking
channels to ease them in providing top notch services to their clients to gain competitive
advantage. E-banking has offered customers convenience as they are able to make transactions
24/7 within being limited to access their accounts anytime they wish to transact. Equally, the
Kenyan banks have enormously benefitted from adoption of electronic banking as it has helped
them in reducing paperwork thus significantly reducing the number of staff members resulting to
massive savings. In identifying factors driving people to adopt new technology and electronic
banking, several theories have been generated which are detailed below.

2.2.1 Technology Acceptance Model

This theory was developed by Warshaw, Davis and Bagozzi in 1989. Various researchers have
employed the theory in understanding the motivating factors towards acceptance of and adoption

6
of new technology. This theory argues that “directly determined by the behavioral intention to
use it, which is in turn influenced by the users' attitudes toward using the system and the
perceived usefulness of the system. Attitude and perceived usefulness are also affected by the
perceived ease of use” (Gikandi & Bloor, 2016). According to Gikonyo (2014), “TAM, greater
perceived usefulness and the perceived ease of use of an information system will positively
influence the attitude toward this system. The attitude, in turn leads to a greater intention to use
the system, which positively affects one's actual use of the system”

This theory is based on two assumptions which comprise of the perceived ease of use and the
perceived usefulness. TAM holds that perceived usefulness is influenced by the perceived ease
of use since the easer the technology can be used, the more useful is likely to be. Perceived
usefulness I this context refers to the importance that the use of technology accrues in one’s job
performance. On the other hand, perceived ease of use can be defined as the extent to which an
individual thinks that the systems or rather the technology would be free of efforts. This theory
has however, encountered criticism as it does not provides basis of measuring the usefulness or
the ease of use of the system.

2.2.2 Innovation diffusion theory (IDT)

IDT describes the intentions of individuals in adopting new technology as modality to perform a
traditional activity. IDT was developed by Rogers in 1983, and he described various critical
factors which influence adoption of new technology which comprised of compatibility, relative
advantage, observability, trialability and complexity.

2.2.3 Theory of planned behavior

This theory was launched by Todd and Taylor in 1995 and it suggested that the intention to try or
rather use new technology is influenced by subjective norms, attitude and perceived behavioral
control (Gikonyo, 2014). This theory operated under assumption that people make systematic
decisions stemming out of their rational behaviors. Additionally, the theory believes that
individuals usually reason about their implications of the actions they take which guide them
whether or not to undertake a particular decision. This theory is based on the level of behavioral
change and cognitive processing (Sathye, 2015).

7
2.3 Empirical literature review
Various studies conducted by distinguished researchers have revealed electronic banking
amplifies the customer retention through satisfaction and meeting demands of the clients.
Additionally, it has been proved that electronic banking reduces the operational costs of banking
institution. It minimizes many risky situations associated with banking institution. Following
introduction of electronic banking, internet has become one of the most important building
blocks in banking sector. According to Gikonyo (2014) electronic finance as “the provision of
financial services and markets using electronic communication and computation”

2.3.1 Strengths of Using Electronic Banking Systems

In Kenya, online banking has been a common trend among many banks. Following introduction
of ATMs, credit cards, smart cards, debit cards, electronic funds transfer systems, mobile and
internet banking, the activities associated with transfer of money, payments of bills and tracking
the records of individual’s bank account has become much easier. Electronic banking has
increased convenience by affording the customers an opportunity to access their banking
information from anywhere provided that they can access the internet. Electronic banking has
equally benefitted banking institution by lowering operation costs thus maximizing their
revenues. Banking institutions have been able to reduce the errors committed through
introduction of computerized banking operations. Customers are able to access loans from
banking institutions without having to visit banks.

2.3.2 Importance and Limitation of Computerized Banking

Electronic banking has increased efficiency by shifting operations from paper work to electronic.
E-banking has significantly reduced amount of time taken by clients in banking halls this
increases satisfaction among the clients. Electronic banking has streamlined banking services.
Electronic banking has made banking operation easier and convenient as people do not have to
queue to make transactions (Sathye, 2015). It is efficient and fast hence the time required to
make transaction is short. Customers can notice any fraudulent activity against their accounts and
take necessary actions to curb the same. Internet banking can, however, pose various threats to
personal information as it may be exposed leading to loss of money while in someone’s account.
For customers to undertake electronic banking, they need to have internet connection. Customers
information especially account details may be accessed by unauthorized people who may hack

8
through the systems of the banks. Customers cannot access their accounts when the servers are
down.

2.2.3 Financial Reporting, Bank and Account Reconciliation

Electronic banking has made reconciliation of customers’ accounts easier besides making
financial reporting among banking institution easier. Initially, transactions were recorded
manually thus reducing time taken to process transactions as well as increasing accuracy and
validity of financial data reported in bank’s financial statements. Commercial banks especially
equity has gained substantial amount of benefits through aggregating various components within
its operations (Sathye, 2015). Specifically, the bank has segmented its operations leading to easy
reporting procedures as the incomes of the institution is reported citing the source of the revenue.
For instance, if the company has recorded a profit of one hundred million from Equitel, then the
income is attributed to the source from which the revenue was generated from. Electronic
banking has facilitated consolidation of various sources of income within the banking institution
leading to presentation of true and fair view of financial statements.

2.4 Conceptual Framework

A conceptual framework will develop the relationship between financial performance and
electronic banking in Kenyan banking industry (Sathye, 2015). The framework will consist of
independent variables which include; ATMs, internet banking and mobile banking and
dependent variables which will comprise of financial performance only. Gikandi (2014) feels
that “adoption of electronic banking has made some banking tasks more efficient and cheaper,
technological investments are taking a larger share of bank’s resources. Therefore, a sound
analysis of costs and risks associated with electronic banking is needed to avoid harms on bank
financial performance.” Electronic banking equally benefits both banking institutions and
customers. Customers undertaking online transactions do it with a lot of convenience as it is
speed. Literary, it is reassuring and enjoyable exercise, however, it is subject to some limitations
and risks. Generally, it is plausible to say that electronic banking has transformed banking
industry by offering unprecedented features and freedom to transact on the comfort of their
couches.

9
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction
This chapter will give brief descriptive of thee research methods which will be used to executing
this study. The chapter is segmented into various segments, specifically; section 3.2 describes the
research design to be employed. Section 3.3 will explain the target population and the sample
frame, section 3.4 will describe samples and sampling techniques used. Section 3.4 details the
proposal documentation, lastly, data collection, data analysis and presentation techniques are
discussed in section 3.6 and 3.7 respectively.

3.2 Research Design

The research would employ descriptive research. According to Njogu (2014) descriptive research
as a “systematic research method for collecting data from a representative sample of individuals
using instruments composed of closed- ended and/or open-ended questions, observations, and
interviews” it is commonly employed research design which is non-experimental. It facilitates
collection of data across disciplines thus accumulating data from which sample is selected.

3.3 Target population and sample frame

Mugenda and Mugenda (2015) defined population as a “complete set of individuals, cases or
objects with some common observable characteristics” Target population will consist of various
banking institution in Kenya. To be specific the research will target population of 44 banking
institution in Kenya.

3.4 Sample and Sampling Techniques

A sample refers to a segment of the targeted population, which has been chronologically selected
to give a general view of the entire population (Siam, 2016). This proposal would adopt census
sampling procedure. This method is essentially idea when the sample population is small.

3.5 Instrumentation
Secondary data will be obtained from e-articles, websites, books and administration of
questionnaires as well as websites related to the subject being studied.

10
3.6 Data collection
The research would integrate the use of audited financial statements for the year 2018 as well as
reports from central bank of Kenya.

3.7 Data Analysis and presentation techniques

Regression and correlation statistics would be used to analyze data in addition to SPSS.
Dependent variables will be correlated with independent variables to establish the relationship
between and among the variables. The significance of their relationship would be determined by
use of regression statistics. The frequencies and percentages would be calculated and tabulated in
pie charts or bar charts or frequency distribution matrix.

11
 REFERENCES
Ceylan O, Emre O & Aslı,D.H. (2018). “The impact of Internet-Banking on Bank Profitability
the Case of Turkey”, .Oxford Business &Economics Conference Program.

Davis, F.D. (2018). Perceived usefulness, perceived ease of use, and user acceptance of
computer technology. MIS Quarterly, 13(3), 319-340.

DeYoung, R., Lang, W. W., & Nolle, D. L. (2017). How the Internet affects output and
performance at community banks. Journal of Banking & Finance, 31(4), 1033-1060.

Gikandi, J. W., & Bloor, C. (2016). Adoption and effectiveness of electronic banking in Kenya.
Electronic commerce research and applications, 9(4), 277-282.

Gikonyo, J. K. (2014). Factors influencing the Adoption of internet banking in Kenya. Journal of
Business Management, 16(9), 60-65.

Mwangi, K. D. (2014). The effect of electronic banking on the financial performance of

Commercial Banks in Kenya. A Research Project Submitted in Partial Fulfillment of the
Requirements for the Master of Business Administration (MBA), University of Nairobi.

Njogu, N. J. (2014). The effect of electronic banking on profitability of commercial banks in

Kenya. International Journal of Arts and Commerce, 2(3), 25-29.

Ovia,J. (2019) Internet Banking: practice and Potentials in Nigeria.Paper Delivered at a

Workshop organized by ICAN at Lagos. Pedersen, P.E. (2005). Adoption of mobile
internet services: an exploratory study of mobile commerce early adopters. Journal of
Organizational Computing, 15(2),203-22

Polatoglu, V. N., & Ekin, S. (2018). An empirical investigation of the Turkish consumers
acceptance of Internet banking services. International Journal of Bank Marketing, 19(4),
156-165.

Sathye, M. (2015). “The Impact of Internet Banking on Performance and Risk Profile: Evidence
from Australian Credit Unions”, The Journal of International Banking Regulation, Vol. 6
No. 2, February.

12
Siam, A. Z. (2016). Role of the Electronic Banking Services on the Profits of Jordanian Banks.
American Journal of Applied Sciences , 1999-2004.

Simpson, J., (2016). The Impact of the Internet in Banking: Observations and Evidence from
Developed and Emerging Markets. Telematics and Informatics, 19, pp. 315-330

13
 APPENDICES
LETTER OF INTRODUCTION

Dear Sir/Madam,

Re: Request for Research Data

The researcher is an undergraduate student at KCA University pursuing a Bachelor of commerce

program. Topic of research is “effects of electronic accounting on efficiency of operations in
banking sector in Kenya.” The researcher will ensure that all data given is treated with
confidentiality and no disclosures will be done without your consent. The information sought is
purely for academic purposes. Findings of this research will be given to KCAU, in line with
agreement of the researcher and the institution. Kindly facilitate the data collection necessary by
answering all the questions precisely and accurately as possible.

Yours truly,

Munguti kamandi

Email: mungutikamandi@gmail.com

14