Electronic Payment Systems and the Profitability of Commercial Banks in Nairobi City County, Kenya

Within the banking industry, payment services are a fundamental activity that contributes substantially to operating revenues and costs and influences the market share of banking institutions, particularly through credit provision. Digital technologies are being rapidly incorporated into Kenya’s banking sector, yet it remains unclear how these advances actually affect profitability. There are therefore concerns about the impact of electronic payment systems on financial performance. This study investigated how electronic payment systems affect the profitability of commercial banks in Nairobi City County, Kenya. The Resource-Based View Theory, Technology Acceptance Model, and Agency Theory, which together describe the adoption of financial technology and its performance implications, served as the theoretical foundation of the study. The specific objectives were to evaluate the effects of automated teller machines, mobile banking, and internet banking on bank profitability. A descriptive research approach was adopted. A sample of 157 respondents was selected using simple random sampling from a target population of 258 employees from selected commercial banks in Nairobi City County, Kenya. Primary data were collected using structured questionnaires. The reliability of the research instrument was evaluated using Cronbach's alpha coefficients. With alpha values of 0.781 for automated teller machines, 0.843 for mobile banking, 0.802 for internet banking, and 0.865 for bank profitability, the results showed satisfactory internal consistency across all variables. Construct and content validity assessments were used to establish the validity of the instrument. The suitability of the data for regression analysis was verified using diagnostic tests for autocorrelation, heteroscedasticity, multicollinearity, and normality. Descriptive statistics and multiple regression estimation techniques were used to analyse the data at a 95 per cent confidence level. The regression results showed that mobile banking had a favourable and statistically significant effect on profitability. Internet banking also had a favourable and statistically significant effect, although its contribution was comparatively smaller because of lower adoption levels. Automated teller machines, on the other hand, demonstrated a favourable but statistically insignificant effect on profitability, indicating indirect benefits primarily through increased efficiency and service accessibility rather than direct profit generation. The findings indicate that electronic payment systems improve commercial banks’ profitability, especially through internet and mobile banking. The study recommends sustained investment in ATM infrastructure, continuous innovation and user-centred enhancement of mobile banking platforms, improved customer education, and streamlining of internet banking systems to increase adoption and overall bank profitability.