BLOCKCHAIN TECHNOLOGY ADOPTION AND PERFORMANCE OF COMMERCIAL BANKS IN NAIROBI CITY COUNTY, KENYA

Abstract

Today, banks are affected by economic and digital transformation, financial innovations, and the development of the internet. With the increasing innovation in technology for modernizing our lives, new ways to make day to day life effortless and quicker have been introduced. Blockchain is a disruptive, decentralized, replicable, distributed ledger technology with the potential to change the conventional business landscape in banking. It can transform the banking industry and make processes more democratic, transparent, secure and efficient. Bank transactions are often considered non-transparent, inefficient, and expensive, blockchain is a data structure that ensures that all these issues are taken care of. However, despite the permissionless and self-governing nature of blockchains, the regulation and actual implementation of a decentralized system are problems that remain to be resolved. The fact that no single authority controls blockchain is the heart of its applicability in Kenya. Banks can use digital money to eliminate intermediaries that often constrain the capacity of the individual traders to enter into contracts. Cryptocurrencies operate on a user-to-user basis to enhance flexibility and control by the individual traders. The use of blockchain can help the state to reduce the risk of loss owed to inaccurate authentication and valuation of assets. The main objective of the study is to establish the level of readiness of blockchain adoption in commercial banks and how it can be used to revolutionize the banking industry, the barriers and challenges of blockchain implementation in Kenya and to identify the areas of further strengthening to the effectiveness of blockchain technology in the banking industry. This study used descriptive research design whose main aim was to identify any causal links between the factors or variables that pertain to the research problem. Data collection was done by use of questionnaires. The questionnaire was evaluated for content validity and reliability. Data analysis involved cleaning data and identifying common themes from the respondents’ description of their experiences. The data collected was analyzed by use of descriptive and inferential statistics. Multiple regression model was used to show the relationship between the dependent variable and the independent variables. The quantitative data generated was keyed in and analyzed by use of Statistical Package of Social Sciences (SPSS) version 29 to generate information which was presented using tables, charts, frequencies and percentages. The findings from the study revealed that the unclear legal status of cryptocurrencies impacts on banks' willingness to adopt blockchain technology and this could be due to the lack of government regulation on blockchain and cryptocurrencies which indicates a clear need in the regulation of blockchain in Kenya. The study concluded that slow adoption rate of blockchain technology is mostly attributed to lack of understanding and knowledge of the technology. This leads to low uptake of blockchain technology by commercial banks and hence leads to them not realizing the benefits it has to offer. The study recommends that Kenyan banks should analyze the cost-benefit trade-off for implementing blockchain technology which could help them make informed decisions about whether or not to invest in it.

Key Words: Blockchain Technology Adoption, Performance of Commercial Banks, Technological Capability, Regulatory Framework