Effectiveness of electronic banking to the development of finanacial institutions in Uganda

Abstract

With the rapid expansion of the Internet, there are a number of initiatives underway for the creation of a secure cost-effective payment system which will be able to support growing commercial activities on the network. Although electronic payment systems for large payments have been in operation for some time, rapidly expanding volumes of foreign exchange and securities trading are increasingly at variance with the requirements for a cost-effective and efficient electronic payment system for making low value payments. Current progress in establishing such payment systems on the Internet is examined. The dissertation proposes that financial institutions can attain increased brand growth and development, and enjoy superior performance by incorporating e-business as an integral component of their overall banking system. The study used primary data which was collected from the employees of Pride Microfinance Uganda limited. The study used both descriptive and inferential statistics in analysing the data that was collected from the case study. The findings of the study were; R = 0.987 and R2= 0.975 which implies that e-banking has a strong, positive and significant effect on the profitability of financial institutions in the Ugandan financial sector. The significance test showed that the influence of financial institutions’ innovations on their profitability was statistically significant meaning that the combined effect of their technological innovations in this research is statistically significant in explaining the profits of financial institutions in Uganda. The study recommends to the management of various financial institutions that are slow in innovation adoption, to move in and adopt various innovations in their operations in order to shore up their profitability. This recommendation is well supported by the fact that highly profitable financial institutions are mostly the fast movers in adoption of new technologies. It also recommends that the Government policymakers should review policies related to promotion of innovation adoption and transfer of technology. Adoption of innovations will improve profitability of organizations because it will translate to better tax revenues for the government.