BINDURA UNIVERSITY OF SCIENCE EDUCATION

FACULTY OF COMMERCE

DEPARTMENT OF BANKING AND

AN EVALUATION OF FINANCIAL INNOVATION AND ITS IMPACT ON FINANCIAL PERFOMANCE OF COMMERCIAL . A CASE STUDY OF CBZ

SUBMITTED BY:

B1542564

A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE BACHELOR OF COMMERCE HONOURS DEGREE IN BANKING AND FINANCE OF BINDURA UNIVERSITY OF SCIENCE EDUCATION.

FACULTY OF COMMERCE

March 2019

APPROVAL FORM The signatories confirm that they have read and recommended to the Bindura University of Science Education for approval of a dissertation entitled “ An evaluation of financial innovation and its impact on financial performance of commercial banks in . A case study of CBZ Bank Ltd”.

Submitted by B1542564 in partial fulfilment of the requirements of the Bachelors in Business Studies, Banking and Finance degree offered by the University.

Signature: Student Date

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Signature: Supervisor Date

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RELEASE FORM

Name of Author : B1542564

Title of dissertation : An evaluation of financial innovation and its impact on

financial performance of commercial banks in Zimbabwe.

A case study of CBZ bank Ltd.

Year granted : 2019

Permission is hereby granted to Bindura University Science Education Library to produce single copies of this dissertation and to lend or sell such copies for private, scholarly or scientific research purpose only. The author reserves other any extensive extracts or publication rights of the dissertation, printed or otherwise replicated without permission in writing from the author.

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Permanent Address 25 Duhwinho Crescent

Zengeza 3

Chitungwiza

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DEDICATIONS This dissertation is devoted to my parents Mr and Mrs Keto for their assistance and encouragement.

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ABSTRACT Financial innovation is a widely recognised aspect in modern day banking and has become one of the biggest contributors to commercial banks profitability. “The study aimed at evaluating the impact of financial innovation on financial performance of commercial banks in Zimbabwe with a closer analysis at CBZ bank Ltd ”. Various forms of financial innovations that have been adopted by CBZ bank Ltd for the past 5 years were outlined. The study was carried out by means of the descriptive research method. A questionnaire was drafted and interviews were done. The study used a sample of 60 CBZ bank employees from e-banking. finance, internal audit, IT and branches. The study used secondary data from financial articles and CBZ bank published annual reports. The independent variables were the forms of financial innovations unique to commercial banks while dependent variable was financial performance, profitability indicators. The study found out that financial innovation has a great impact and is positively correlated to profitability of CBZ commercial Bank. Challenges and benefits involved in the adoption of these various financial innovations were also outlined. Recommendations are for commercial banks to widely adopt financial innovation and reach a wider clientele base and realise more profits. There is also need for CBZ and other commercial banks to invest in strong risk management financial information systems that consist of adequate risk IT infrastructure and processes.

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ACKNOWLEDGEMENTS I would like to thank God Almighty for the gift of life and strength in carrying out my research study. I also want to acknowledge and appreciate my supervisor for the educational advices.

I also like to express gratitude to the Bindura University of Science Education for the opportunity to invest into knowledge and do my Bachelor’s Honors Degree.

I highly and sincerely express my appreciation CBZ Holdings management and staff for their assistance to this research who provided information and vital industry knowledge. Many thanks go to the respondents from CBZ Bank Limited who were part of this research project. Without you this would not be a success. l would also like to acknowledge my family for all the support during my study, may the spirit of love continue to guide you.

Finally, l would like to thank and appreciate my colleagues for their numerous contributions to this research.

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ACRONYMS AND ABBREVIATIONS

CBZ Commercial Bank of Zimbabwe ATM Automated Teller Machines CEO Chief Executive Officer ROA Return on Assets ICT Information and Communication Technology IT Information Technology BUSE Bindura University of Science Education ROA Return on Assets NIM Net Interest Margin RBZ PC Personal computer RTGS Real Time Gross Settlement POS Point of Sales SMEs Small to Medium Enterprises SPSS Scientific Packages for Social Sciences ROE Return on Equity BAZ Bankers Association of Zimbabwe POS Point of sale machine SD Standard Deviation SMS Short Message Service

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Table of Contents APPROVAL FORM ...... ii RELEASE FORM ...... iii DEDICATIONS ...... iv ABSTRACT ...... v ACKNOWLEDGEMENTS ...... vi INTRODUCTION ...... 1 1.0 Introduction ...... 1 1.1 Background to the study ...... 1 1.2 Commercial banks in Zimbabwe Overview ...... 3 1.2.1 Commercial Bank of Zimbabwe (`CBZ Bank Limited) ...... 3 1.3 Statement of the Problem ...... 3 1.4 Research objectives ...... 4 1.4.1 Research questions ...... 4 1.5 Significance of the study ...... 5 1.6 Assumptions ...... 5 1.7 Delimitations ...... 6 1.7.1 Limitations of the Study...... 6 1.8 Definition of key terms ...... 7 1.9 Summary ...... 7 2 Introduction ...... 8 2.1 Theoretical Framework ...... 8 2.1.1 Financial innovation...... 8 2.1.2 Financial Performance ...... 9 2.2.2 Constraint Induced Financial Innovation Theory ...... 10 2.2.3 Technology Acceptance Model ...... 11 2.2.4 Demand-Supply Theory of Innovation ...... 11 2.2.5 Transactions Cost Innovative Theory ...... 12 2.3 Conceptual Framework ...... 12 2.4.3 Relationship between financial innovation and financial performance ...... 13 2.3.1 Forms of Financial Innovation ...... 13

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2.3.2 Product innovation ...... 14 2.3.3 Process innovation ...... 14 2.3.4 Institutional innovation ...... 14 2.4 Bank Financial Performance Indicators ...... 14 2.4.1 Return on Equity ROE ...... 14 2.4.2 Return on Asset (ROA) ...... 15 2.4.3 Net Interest Margin (NIM)...... 15 2.4.4 Financial variables ...... 15 2.4.5 Non-financial statement variables...... 15 2.6 Process Innovation ...... 16 2.6.1 Automation and Financial Performance ...... 16 2.6.2 Mobile Banking and Financial Performance ...... 16 2.6.3 Internet Banking and Financial Performance ...... 17 2.7 Product Innovation ...... 18 2.7.1 ATM’s and Financial Performance ...... 18 2.8 Institutional Innovation ...... 20 2.8.1 Changes in business structure and financial Performance ...... 20 2.9 Bank innovations and competitiveness of Commercial Banks ...... 21 2.10 Financial innovation and the Banking Sector ...... 22 2.11 Empirical Review Financial Innovations and it impact on financial performance. ... 22 2.12 Research gaps ...... 26 2.13 Summary ...... 26 3.0 Introduction ...... 27 3.1 Research Design...... 27 3.1.1 Descriptive research design ...... 27 3.3 Case study justification ...... 28 3.4 Primary sources ...... 29 3.5 Secondary Sources ...... 29 3.6 Data collection instruments ...... 30 3.6.1 Questionnaire ...... 30 3.6.2 Interviews ...... 31

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3.7 The Population ...... 32 3.7.1 Population ...... 32 3.7.2 Sampling ...... 32 3.7.4 Stratified Sampling ...... 33 3.7.5 Purposive Sampling ...... 34 3.8 Reliability of the research instruments ...... 34 3.9 Validity of the Research Instruments ...... 34 3.10 Data Processing and Analysis Procedures ...... 35 3.11 Pilot Test ...... 35 3.12 Ethical Considerations ...... 35 3.13 Chapter summary ...... 35 CHAPTER IV...... 36 DATA PRESENTATION, ANALYSIS AND DISCUSSION ...... 36 4.0 Introduction ...... 36 4.1.1 Questionnaire response rate ...... 36 4.3 level of experience of Respondents ...... 38 4.4 Product innovation effect on profitability of CBZ Bank...... 39 4.4.1 The need for Financial Innovation by CBZ bank...... 39 4.4.2 ATM and Debit and Cards Usage ...... 39 4.4.3 Performance benefits that are gained through ATM and usage ...... 41 4.4.4 CBZ Touch and acceptability by customers ...... 42 4.5 Financial Innovation and competitiveness of CBZ bank...... 43 4.5.1 New Service structures ...... 43 4.5.2 Point of Sale Machines ...... 44 4.5.3 Product innovation, frequency of usage and adaptability...... 45 4.6 Impact of process innovation on the revenue of CBZ Bank ...... 45 4.6.1 Process innovation and its impact on CBZ cashflows ...... 45 4.7 Impact of institutional innovation on the revenue of CBZ Bank ...... 46 4.7.1 New type of intermediaries ...... 45 Error! Bookmark not defined. 4.7.2 Descriptive Statistics ...... 46 4.8 Overall Impact of financial innovation on Profitability of CBZ bank ...... 47

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4.8.1 Descriptive statistics of bank innovation on profitability of CBZ commercial Bank 47 4.8.2 Financial performance Ratios ...... 48 4.8.3 Analysis of profit ...... 49 4.8.4 Financial Innovation and CBZ revenue growth ...... 50 4.9 Which form of innovation should CBZ Bank channel its resources the most? ...... 51 4.10 Correlation between Financial Innovation on financial performance of CBZ bank ...... 51 4.10 Commercial banks and financial innovation ...... 52 4.10.1 Commercial Banks Financial Performance ...... 52 4.11 Benefits of financial innovation to CBZ bank ...... 53 4.11.1 Other notable benefits ...... 54 4.12 Challenges related to the adoption of financial innovation by commercial banks. .. 55 4.13 Chapter summary ...... 56 CHAPTER V ...... 57 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS...... 57 5.0 Introduction ...... 57 5.2.1 Financial innovation and its impact on profitability of CBZ commercial Bank ...... 57 5.2.2 Effect of ATM and card usage on the financial performance of CBZ Bank ...... 58 5.2.3 Impact of product, process and institutional innovation on the profitability of CBZ 58 5.2.4 The need for financial innovations in fostering and competitiveness of CBZ Bank .. 58 5.2.5 Challenges faced by commercial banks in the adoption of financial innovation ...... 59 5.2.6 Input of financial innovations on the revenues of CBZ Bank Ltd ...... 59 5.3 Conclusion ...... 59 5.4 Recommendations ...... 60 5.5 Areas for further research ...... 61 REFERENCES ...... 62 Appendix I ...... 66 Questionnaire ...... 66 Appendix II ...... 70 Interview Guide ...... 70

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LIST OF TABLES Table 3.1 Sample population constitution ……………………………………………...…...….33

Table 4.1 Questionnaire response rate…………………………………………………….….…36

Table 4.2 Interviews response rate……………………………………………………….……...37

Table 4.3 Position held in the organization by respondents…………………………………...... 37

Table 4.4 Level of experience of Respondents…………………………………………...... 38

Table 4.5ATM and Debit and Cards Usage Frequency…………………………………………39

Table 4.6 CBZ Touch and social media statistics…………………………………………...... 42

Table 4.7 Product innovation frequency of usage………………………………………………44

Table 4.8 Descriptive Statistics of institutional innovations and CBZ revenue………………...45

Table 4.9 Ascertaining performance of CBZ bank for the last 5 years…………………….…...46

Table 4.10 Descriptive statistics on the impact of bank innovation on profitability of CBZ commercial Bank…………………………………………………………………………...…...47

Table 4.11 CBZ 5-year financial performance ratios ……………………………………...…...48

Table 4.12 Profit analysis……………………………………………………………………….49

Table 4.13 Preferred form of innovation…………………………………………………….….50

Table 4.14 Correlation of financial innovation and CBZ financial performance………………50

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LIST OF FIGURES

Figure 2:1 Relationship between financial innovation and financial performance……………...13

Figure 4.1 The need for Financial Innovation by CBZ bank. …………………………………...38

Figure 4.2 Performance benefits that are gained through ATM and Debit card usage………….40

Figure 4.3 New Service structures and competitiveness of CBZ bank………………………….43

Figure 4.4 Point of Sale Machines and competitiveness of CBZ bank………………………….43

Figure 4.5 Financial innovation and revenue growth of CBZ Bank, industry and sector……… 45

Figure 4.6 Process innovation and its impact on CBZ cashflows……………………………….49

Figure 4.7 Financial Innovation adoption by Commercial Banks in Zimbabwe……...…... …...51

Figure 4.8 ROA, ROE and NIM as profitability measures for Commercial Banks ……………52

Figure 4.9 Financial innovation benefits to CBZ Bank…………………………………………52

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CHAPTER I

INTRODUCTION 1.0 Introduction The research focused on financial innovation impact on financial performance of commercial banks. A case study of CBZ bank. This chapter introduces the study explores the background information giving rise to the study. It highlights, the problem statement, research objectives and significance of the study. Limitations and delimitation of the study are examined as well as definition of key terms and the summary. This chapter forms the foundation of the research.

1.1 Background to the study Innovation is the key driver of growth in an organization as it helps in transformation, prospering and synchronization of changes in both internal & external environments. Banks are subjects to this too. According to Schrieder and Heidhues (1995) there are three main forms of financial innovation which includes product innovations, process innovations and Institutional Innovation. Product innovations aims at bringing newer versions of products in the banking industry while process innovations seek to better the efficiency of processes and Institutional innovation relate to changes in business structures and the establishment of new types of financial intermediaries. They also argue that innovations are developed depending on the management analysis of the environment and responses to such challenges that may be identified.

Allan and Gale (1994) suggested that innovations in financial systems takes the form of new financial instruments, service or training. It is therefore the introduction of new uses for funds, finding out new sources of funds, introduction of new processes or methods to handle daily operations as well as creating a completely new organization. These diversified changes constitute prevailing financial institutions, and a whole new hatch of financial institutions and markets.

The global financial system for the last two decades, posed a steady innovation stanza in secondary markets which led to new financial products and intermediaries being used to hedge specific risks as alluded by Kero (2013). After global liberalization process there has been an increasing

competition, both within and outside the banking industry, and financial innovation. Global financial crisis aftermath has in-sighted curiosity among many investors and regulators of the substantial value of financial innovations. This is backed by the statement of former USA Federal Reserve Bank chairman who hoped for substantial evidence on the relationship between financial innovations growth of the economy, Volcker, (2009). “Several studies indicate substantial role of innovation in services to modern economies in relation to their employment output and inputs to other sectors of the economy. For example, Frame and White (2004) conclude that the adoption and spread of an innovation transversely in an industry is important and that faster innovation diffusion leads to higher revenues to the society associated with investments in the innovations ”.

Regionally, many African countries have moved a milestone to equip themselves with the modern innovation techniques as a tool in transformation of their banks. Gorton and Metrick (2010) recapitulate the reasons for the development of modern financial innovation affirming the reduction in bankruptcy costs, tax advantages, reduction in moral hazard, reduced regulatory costs, transparency and customization. Another scholar Joshua, (2010) indicated that in west Africa Ghanaian commercial banks have significantly improved the way they serve their clients as a result of financial innovation. This has increased convenience as well as increase profits and competitiveness while the most groundbreaking electronic innovation in Ghana and the world over has been the ATM.

In the near past, there was possibility for Zimbabwean banks to gratify their customers and also meet their particular performance targets deprived of the requirement and effort to develop any new products or improving service delivery. This was because of fewer banks and account holders, hence the shortened volume of transactions, and also lack of competition. Recently a figure of thirteen commercial banks are said to be registered with the RBZ indicating a rise in the use financial products and services. Zimbabwe for the past decade has been experiencing cash shortages due to liquidity crises and this has seen the rise of plastic money and the use of debit and credit cards. The situation itself has called for financial innovation by commercial banks and other players in the financial system with the aim of beating competition and to perform financial well.

The implications of financial innovation have been identified in previous researches and the extent to which they affect the banks financial performance, however this research is aimed at evaluating the impact of financial innovation in relation to financial performance as well as recommendations

2 specifically for CBZ bank Limited. CBZ bank have adopted financial innovation backdating a number of years ago and have improved its services and products. One of its major break-through was integrating them on one platform through their mobile app, the CBZ touch. CBZ touch enables customers to view balances for individual and loans accounts, acquiring policy quotations short- term . The mobile app also facilitates funeral and educational policy applications, payment of school and tertiary fees. Internet option of blocking and unblocking ATM debit cards, paying ZIMRA and utilities (DSTV, ZETDC prepaid electricity) and many other . (CBZ annual report 2016)

1.2 Commercial banks in Zimbabwe Overview Zimbabwe has 13 commercial banks that are controlled by Companies and the Banking Act of Zimbabwe. As indicated by the Reserve Bank Zimbabwe (2015), 54% of commercial banks are foreign owned, 31% are owned by Zimbabwean local people and 15% are government owned. Therefore, from thirteen commercial banks in Zimbabwe, only, 5 of them registered on Zimbabwe stock exchange.

1.2.1 Commercial Bank of Zimbabwe (`CBZ Bank Limited)

CBZ Bank Limited is exclusively “owned by CBZ Holdings Limited, a locally incorporated company registered on the Zimbabwe Stock Exchange. They offer a varied range of innovative banking and financial services solutions to personal and corporate customers is offered through the following; Retail Banking , Corporate & Merchant Banking , E-Banking & Card Services , Mortgage Finance , Agribusiness , Advisory Services , Asset Finance , Wealth Management , Treasury, Trade Finance & International Banking and Custodial Services ”. According to (CBZ annual report, 2018) CBZ Bank as of December 2017 the leading financial services provider in Zimbabwe with overall assets valued in surplus of US$1.992 billion and stockholders' equity of US$188.11 million.

1.3 Statement of the Problem Financial Innovation has been the major talk in every country and every financial system and its effects has been seen on a global scale. Mwania and Muganda (2011) after their study on the same phenomena concluded that financial innovation had substantial contribution to bank performance. Mansury and Love (2008) had a slight twist of opinions where in their study stated that innovations mainly leads to positive effect on growth of entities and not particularly on

3 financial performance and productivity. Despite the vivid contribution of financial innovations, the extend of their impact on financial performance of commercial banks in Zimbabwe has not been clearly indicated and fully acknowledged. Akello (2001) researched on major factors that influence financial innovation, product innovation and organizational innovation and their impact on financial performance focusing on micro finance institutions in Kenya.

There is a cumulative investment increase in in technology-based bank innovations hence financial performance of commercial in Zimbabwe ought to be examined. This research therefore aimed at determining financial innovations impact on the financial well-being of commercial banks in Zimbabwe with an in-depth analysis of CBZ bank Ltd, indicating various bank innovations and their contribution to overall profits.

1.4 Research objectives

 To establish the effect of ATM and card usage on the financial performance of commercial banks.  To determine the impact of product, process and institutional innovation on the profitability of CBZ bank.  To investigate the need for financial innovations in fostering competitiveness of CBZ Bank Ltd.  To identify challenges faced by CBZ Bank in the adoption of financial innovation.

1.4.1 Research questions

The following questions will be answered after the study has been completed:

How has ATM and card usage affected financial performance of commercial banks. To what extent does product, process and institutional innovation affect profitability of CBZ bank.? Are bank innovations necessary? How do they influence and competitiveness of CBZ Bank Ltd in the financial sector? What are the challenges associated with the adoption of financial innovation by CBZ Bank?

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1.5 Significance of the study

To the student

The research is “vibrant as it broadens the scoop of study and equip the student with indepth knowledge of the banking and finance spectrum. The researcher benefits from the concept of determining key drivers of financial innovation in the banking industry. The project also ensures the researcher the application of diverse base of knowledge in the section of scientific research in the banking sector and other academic curriculum. ”

To the government

The researcher is also keen that the government can use the findings of the research into considering its impact in the banking industry by proving deregulate measures in order to attract more investment. The effort contributes to economic development through the implantation of a well formulated monetary and fiscal policy.

Bindura University of Science Education.

The research can to act as a chaperon line to students at the university as it will be used as literature review to correlated projects. The research enables the university to access whether the resources of study is enough to carter for various researches.it can also help the university to know the relevance of the graduated students to the outside environment and to have future literature for the future students.

To CBZ Bank Ltd

The research was vital to the management in order to craft strategies which add value to strengthen the organization by determining the input of financial innovations to their overall cash flows, revenues and profitability. The organization therefore benefit from the immense valuable information which give clear suggestion of areas that need to be addressed for success.

1.6 Assumptions Permissible and reliable data that is free from bias will be given CBZ Bank respondents for a successful study. There is supervision in the banking sector and the financial system is operating without rigidness and effectively. The sample taken by the researcher will be a true representative

5 of the population under study. Financial policies implemented on financial institutions have an overall effect on the economy as a whole.

1.7 Delimitations The study is focused on CBZ Bank as a representative of commercial bank in Zimbabwe. CBZ key departments which are E-Banking and Card Services Department, IT, internal audit and finance department at the headquarters are used where much data related to the study is concentrated. The Central Business District is the area of concern to which the largest number of departments and branches are located and where a number of various innovations are implemented fully. The time frame of the study is from January 2013 to December 2017.

Financial performance variants used are profitability ratios; Return on Equity, return on Asset, Net Interest Margin, as well as liquidity ratios and other non-financial variables. Bank innovations used in the study were categorized into, product process and institutional or organizational innovation.

1.7.1 Limitations of the Study.  There was restricted information congregated from E-banking respondents pertaining e- banking products and services attributable to the policies of the bank (declaration of confidentiality).  There was constraint in getting access to confidential information due to trade secrets. However, the researcher assured total confidentiality of the information and signed an agreement for non-disclosure of vital information.  A handful of respondents did fully not understand the questions requirements therefore the researcher had to clarify.  The study will use CBZ Bank financial variables giving room to the contributions of adopted financial innovations such as use of CBZ touch, internet banking, and use of prime visa card systems among others.

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1.8 Definition of key terms Debit card is an electronic bank card that permits clients to access their funds (Gerlach, 2000)

Commercial bank - “is a financial institution that offers financial services which includes, accepting deposits, giving business loans, mortgage lending, and basic venture products like savings accounts as well as certificates of deposit (Kaplan and Norton, 1992).

Automated Teller Machine- electronic device programmed to provide banking access platform to registered user of a particular bank. Users have access to monetary transactions in public place (DeYoung, 2005).

The Bank- CBZ Bank Ltd

Product innovation: The manufacture or design of goods or services that are either new or improved forms of existing ones. (Hult, Hurley &Knight, 2004).

Profitability –the ability of a business to earn profit (Business Dictionary 2011).

Financial Performance is a measure of how well an organization can use assets from its primary mode of business to make revenues (Greenwood and Jovanovich, 1990).

Mobile Banking – refers to a banking service provided by financial institutions to their customers to conduct financial transactions remotely by means of mobile telecommunication devices such as a tablet or a cellphone (Sathye,1999).

1.9 Chapter Summary This chapter presented the overall overview of the study. It is an introduction to the research which covered the subsequent main areas which are “background to the study, statement of the problem, research objectives, research questions, significance of the study, assumptions made, limitations and delimitations of the study, and finally meanings of terms that were used in the research study ”. The following chapter therefore analyses what other authorities say on relevant areas of concern which is the literature review.

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“CHAPTER II ”

“LITERATURE REVIEW”

2 Introduction

A “ literature review is a form of text that purposes to review the critical points of existing knowledge including substantive verdicts as well as theoretical and methodological involvement to a particular topic. This chapter defines, explains and shows the linkage of financial innovations and financial performance. Related literature on the latter and former is given, outlining views and opinions given by various authors and scholars on issues relating to how these innovations have impacted commercial banks profitability. The analysis is broadened to cover conceptual and theoretical framework guiding the study as well as empirical literature ” review.

2.1 Theoretical Framework The theoretical framework takes into account, different scholars that have designed several theories that goes in line with the financial innovation and financial performance of Commercial Banks.

2.1.1 Financial innovation Tufano (2002) defined financial innovation as the act of making new financial instruments, new financial technologies, new institutions as well as new markets. Financial innovations have revolutionized the way banking is conducted as indicated by Yin and Zhengzheng (2010) who, in their study showed how Chinese commercial banks moved away from the traditional business operation mode of comprehensive credit operations to the retail mode resulting from technological innovations. Ignazio (2007) definition of financial innovations included the developments of new financial products and services and the process of delivering existing financial services. Therefore, financial innovations can take different ways and forms the prominent being product, process and institutional innovation.

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Mytelka, (2000) further highlighted that financial innovation involves a process to which firms master, implement and design the making of goods and services that are new to them regardless of whether they are new to their opponents or country. It is safe to say that innovations ensure a competitive advantage for firms in the market. Akamavi (2005) alluded that innovation in the financial services sector has paved way for essential changes which includes; increasing competition, deregulation and more demanding customers. In specific case of the banking industry, it has been claimed that the adoption and diffusion of financial innovation has allowed banks to operate on much thinner margins of safety (Obay, 2013).

The Zimbabwean banking industry has embraced financial innovation widely following the liquidity crunch that hit the country about a decade ago. The use of plastic money, electronic cards, mobile and internet banking has shaped the whole financial system and kept it functional. According to Robert and Amit (2003), innovation continually changes the established order, however some innovations cause larger disruption than others. within the most severe cases, radical innovations essentially modification society and spawn additional generations of innovation. At the opposite end of the spectrum, progressive innovations distinguish an organization from its competitors. For the consumer, they provide a relentless enhancement to existing goods, processes and services, as well as reductions in real costs (Wyman, 2012).

2.1.2 Financial Performance Financial performance shows the financial position of a company, the level of competition in the same sector, and an in-depth knowledge about the cost and income centers within the firm Mohammad and Malek (2012). Thus, financial performance is the backbone of a company and a prominent “measure of how well a firm can use its primary source assets of business and generate revenue. Berger et al (2006) explained that financial performance measures how well a firm is creating value for the owners. Thus, it can be measured by various financial ratios such as, return on net asset (ROA), return on equity (ROE), earning per share, return on capital employed (ROCE) and any market worth ration that is generally accepted”.

Generally, the financial performance of commercial banks and other financial organizations has been measured using a mixture of financial ratios, measuring performance in par with the budget and benchmarking Ahmed et al (2011). Financial performance is highly regarded as the best source of a company’s continuity and growth as it provides an array of accurate and reliable information

9 in comparing actual performance of an entity’s revenue from operations, cash flows and total unit sales. The intensity of worldwide business competition has led corporations to use different types of performance valuation tools in evaluating their financial situation. That is, the use of financial ratios in the performance assessment can be suitable for companies and their counterparts. (Mohammad and Malek,2012).

2.2.1 Theory of Innovation Diffusion The “theory of innovation diffusion was pioneered by Rogers (1995) where he stated that innovation entails spontaneous or deliberate spread of new thoughts. Rogers defines innovation as a concept, exercise, or item that is perceived as new. The idea stresses that the notion of alternate is essential and when a concept appears new to the potential adopter, it may be considered to be an innovation”. Rogers (1995) similarly describes diffusion as a fact’s alternate procedure amongst participants of a communicating community pushed by using the need to lessen uncertainty. Innovation diffusion suggest that the life of an innovation can cause uncertainty inside the minds of capacity adopters. Berlyne, (1962). In “this case, uncertainty refers to lack of obviousness of information. Uncertainty therefore can be considered as the degree to which a number of other possibilities are perceived in relation to the occurrence of some event, together with the relative probabilities of each of these alternatives occurring. Willing adopters of the innovation are stirred to seek information to reduce such kind of uncertainty. According to Rogers (1995) diffusion of an innovation has five important characteristics which consist of its relative advantage, compatibility, complexity, trialability, and observability. The innovation diffusion model can be used to explain process innovation where technology is a component. For example, the theory can be used to explain automation of service delivery by financial institutions”. 2.2.2 Constraint Induced Financial Innovation Theory Constraint induced financial innovation theory was pioneered by Silber (1983). The model was of the idea that profit expansion of financial institutions is the main reason of financial innovation. In his theory Silber (1983) indicated that there are some restrictions that includes internal handicaps such as organizational management and external handicaps such as policy, that are imbedded in the profit maximization process. The restrictions are said to reduce the efficiency of financial institutions so financial institutions tends to cast them off. Silber (1983) in his constraint- induced innovation theory debated financial innovation from microeconomics, so it can direct the

10 phenomenon of financial innovation increasing in the trend of liberal finance creditably. The theory emphasized innovation excessively and in adversity.

2.2.3 Technology Acceptance Model The perceived usefulness and perceived ease of use can be used to predict the attitude towards by means of new technology according to Technology Acceptance Model (TAM) (Davis, 1989). TAM is a widely used model that explain an individual’s adoption of technology. Perceived usefulness is well-defined by Davis as the extent to which an individual has confidence in using a particular system would improve his/her job performance. Thus, financial innovation adopters, commercial banks, will be compelled by the numerous advantages like efficiency, convenience as well as revenue generation.

TAM explains that the “ perceived ease of use is the extent to which the probable adopter expects the new technology adopted to be a free effort concerning its transfer and utilization. Thus, if users feel that mobile and internet banking is easy to use, then it is highly likely for them to use the system. Jeyaraj et al . (2006) emphasized an inclusive review of potential of adoptions of technology by organizations and individuals that were issued between 1992 and 2003. Findings reviewed that TAM is one of the most popular used technology adoption models ”.

TAM was first presented in “1989, but it is still being widely used today despite critics from other scholars that say TAM on its own is inadequate to explain users' decisions to adopt technologies. Thus, indication is to use TAM as a base model and cover it further by including other variables to the model depending on the sorts of technologies studied. For example, Kamarulzaman (2007) on his study of internet shopping adoption described TAM and included personal and perceptive influence. Amin (2007) also modified the original TAM by including perceived credibility and the amount of information on mobile were added to his study of mobile credit card usage purposes”.

2.2.4 Demand-Supply Theory of Innovation The “demand-supply theory of innovation was anticipated by Tidd (2006). The theory was of the idea that the basis of innovations can be studied from either the demand or supply theory of innovation. The demand theory creates demand-driven innovations. That are innovations are created as a response to demand of commercial firms that want to gain competitive advantage in their business environment. According to Blach, (2011). Demand-driven innovations are inclined

11 by either the internal needs of the business firm targeting enhancement of its activities or by the changes in its environment needful of proper adjustments in its business strategy ”.

The second “approach takes note of supply-driven innovations. The theory states that innovations are initially formed by the innovation providers and then they implemented in the business entities who are the end-users of innovations. Supply-driven innovations are attained as a result of the process involving of three phases which comprise of the creativity phase called, invention, the innovation phase, and the diffusion phase which is comprehended by commercialization or diffusion of the innovative solutions. Therefore firms, with competition, can create demand for certain products or services. In the financial sector, rivalry is stiff, and firms seek to outdo each other in coming up with innovations that can address the matter of demand and supply comparative to the market ”.

2.2.5 Transactions Cost Innovative Theory The transaction cost innovation concept was pioneered by Nieman’s (2006) who backed that the main reason of financial innovation adoption is the lessening of transaction cost, and also backed that financial innovation was an offspring of the improvement in technology which led to reduction in transaction cost. The reduction of transaction cost can stimulate financial innovation and improve financial service. Transaction costs Innovation theory is also relevant in this context: for instance, the use of Internet-connected Information Technology (ICT) can greatly reduce a bank transaction costs as it enables efficient synchronized management and use of information. Mobile, Internet-connected ICT may further reduce transaction costs as it provides also off-site access to the firm’s internal database and other relevant sources of information. Therefore, reduction of operation costs over agency banking, internet banking and mobile banking may impact growth in profitability for the bank.

2.3 Conceptual Framework

“A conceptual framework is a study tool expected to assist a researcher in developing and understanding circumstances under study. According to Kombo and Tromp (2009) a concept is an abstract or general idea resulting from specific instances. Conceptual framework forms the root of the agenda to be discussed, analyzed, tested, reviewed and altered as an outcome of investigation. Smyth, (2004) indicated that conceptual framework explains the possible connections between the variables.”

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2.4.3 Relationship between financial innovation and financial performance Figure 2.1 shows a conceptual; diagrammatic framework of the relationship between financial innovation and financial performance. As indicated, there are two different types of variables which are independent and dependent variables. Independent variables are institutional innovation, product innovation, and process innovation. Profitability is the dependent variable.

Independent Variables Dependent Variables

Process Innovation

Mobile banking Internet banking Zimswitch Reconciliation Automation

Financial Performance Product Innovation ATM Profitability Debit Card Usage New & Improved Return on Equity products Net Interest margin CBZ Touch Return on Asset

Mobile app Return on C/Employed

Institutional Innovation New Branches Business Structure Supervisory and Legal Framework Financial intermediaries

Figure 2:1 Relationship between financial innovation and financial performance

2.3.1 Forms of Financial Innovation

Innovation exist in three main forms and these include process, product and institutional Innovation. Schrieder and Heidhues (1995)

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2.3.2 Product innovation This is a type of financial innovation that offers protection to a firm from markets pressures and competitors Hult, Hurley &Knight, (2004). Product Innovation takes the form tangible product produced within the financial systems and some of these include Automated Teller Machines (ATM), debit and credit cards, point of sale terminals (POS), and mobile applications (CBZ Touch).

2.3.3 Process innovation This refers to unification of services, skills and technologies used to produce products or deliver services Ongwen, (2015). Process innovation, according to Schumpeter (1983) creation of a new process in a firm which is new and have not been adopted by the company. These include mobile banking, internet banking and other self-service programs like Zimswitch query resolution, Automation systems, Reconciliation systems Real-Time Gross System (RTGS), Customer Care Hotlines, CBZ VISA prime system, CBZ Postilion system, CBZ Flexcube system among others.

2.3.4 Institutional innovation These are innovations that relay to changes in bank structures and creation of new branches that offer unique banking service and platforms. Rogers (1995) further highlighted that institutional innovation also include changes in the legal and supervisory framework. CBZ business banking offers training, advisory services as well as market connections.

2.4 Bank Financial Performance Indicators Mishkin & Eakins (2014) emphasized that, in order to comprehend how well a bank is doing, one has to look at its income statement as well as the report of the sources of income and expenses that affect the bank’s profitability. Murthy and Sree (2003) further alluded that commercial banks financial performance is best indicated by its profitability. Financial performance of commercial banks is therefore measured using the following ratios; Return on Equity, Return on Asset, Return on Capital Employed, Net Interest Margin, Financial and non-financial indicators.

2.4.1 Return on Equity ROE ROE is a “financial ratio that shows to how much profit a company earned compared to the total amount of shareholder equity invested or found on the balance sheet Khrawish (2011). ROE is what the shareholders expect in return for their investment. A business that has a high return on equity is more probable to be one that is capable of generating cash within. Consequently, the

14 higher the ROE the healthier the company is in terms of profit generation. ROE also reflects how efficiently bank administration is using shareholders’ funds. Thus, the better the ROE the more operative is management in utilizing the shareholder’s capital ”.

2.4.2 Return on Asset (ROA) ROA is a “ratio of income to its total asset Khrawish, (2011). It measures the capacity of the bank management to make income by utilizing company assets at their disposal. In other words, it shows how efficiently the resources of the company are used to generate the income. It further indicates the effectiveness of the management of a business in generating net income from all the resources of the organization. Wong (2004) detailed that a higher ROA shows that the company is more effective in using its resources ”.

2.4.3 Net Interest Margin (NIM) NIM is a measure of the variance between the interest income generated by banks and the amount of interest compensated out to their lenders Gul et al (2011). The higher the net interest margin, the higher the bank's profit and the extra stable the bank is. Return on capital employed (ROCE) places the profit as the percentage of the amount of the capital employed. It is not possible to assess profits or profit growth properly short of capital employed in making the profits. ROCE expresses profitability change from one year to another. The ROCE should be compared with that of similar companies, assessment of ROCE with current borrowing rates for example what will be the cost of extra borrowing if it needed more loans and it is the earning on ROCE that proposes it could make high enough profit to make such borrowing worthwhile.

2.4.4 Financial variables These include variability in verdicts which directly encompass items in the balance sheet and income statement including product development. Development of innovative products is a major obligation for production managers in commercial banks. Their task includes defining marketing requirements as well as skim through the environment for new opportunities Quach (2005). Amongst the internal, management manageable factors are bank financial ratios representative of cost efficiency, capital adequacy, liquidity and asset quality (Richardson, 2002).

2.4.5 Non-financial statement variables These are factors that have no direct relation to the financial statements. Good instances of non- financial variables are, management, ownership structure, and level of technology, number of

15 branches, branch status, location and size of the bank. Thus, being large, fosters economies of scale and reduce the cost of acquiring and processing information. Ownership structure, private, public, foreign, affects the financial performance, privately owned banks are viewed to be more innovative than public owned banks Zenios et al (1999). Level of technology in the economy is fundamental for the efficient way of the functioning of internet and mobile banking as well as efficient in transacting. In Zimbabwe internet banking has brought efficiency to commercial banks hence contributing more profits. Number of branches increases the reach to customers and doubles the profits. Also, the more the branches in different areas, the more innovative the bank be to cater for the different needs of those customers.

2.5 Financial Innovation and Financial Performance of CBZ bank

This seek out to the nexus between forms of bank innovations and financial performance of commercial banks of Zimbabwe giving practical reference to CBZ Bank limited.

2.6 Process Innovation 2.6.1 Automation and Financial Performance Automation comes from the word automatic which refers to a device or process working independently with little or no direct human control, Concise Oxford Dictionary (2017). Influx of request, applications and pending work is nicely automated by several systems in commercial banks making them efficient. CBZ Bank have a Postillion system that generates pending debit card request and produces a file for the production of physical debit cards. The process for the generation is done through automation hence a lot quicker and faster. Generally, all process in commercial banks are being automated. Automation reduces manual labour input which involves errors and duplication therefore increases sales hence cashflows and revenues generation.

2.6.2 Mobile Banking and Financial Performance Rose (1999) defined mobile banking as a service provided by financial institutions in collaboration with mobile phone operatives. ITU, (2009) indicated that there are 10 times more mobile phones as compared to landlines in the sub-Saharan Africa. That is 60% of the population have access to a mobile phone. Indications showed that mobile phone subscriptions improved by 49 % each year from 2002 to 2007, which is higher than 17 percent per year recorded in Europe ITU, (2008). It permits customers to conveniently do their banking by means of their phones anytime. Benefits accrued from mobile banking services include being able to save and borrow in a cost-efficient

16 and secure way, opening bank accounts, viewing account balances, making cash transfers from different accounts, or paying bills through a mobile device. In recent time mobile banking is conducted via SMS, mobile applications and mobile internet (Hicks and Niehans, (1998).

Gartner (2014) indicated that delivery of smart phones is increasing fast, and ought to top 20 million units (of over 800 million sold) as in 2015 only. One of Zimbabwe’s largest mobile operator Econet Wireless indicated that, mobile devices specifically smart phones, are the most potential way to grasp masses and offer efficient service to existing customers, as guided by their capability to deliver services anytime and anywhere. Mobile phones have the highest rate of market penetration and growth potential.

2.6.3 Internet Banking and Financial Performance Internet banking refers to bank services availability to customers using the internet as its distribution channel Gerrard and Cunningham, (2003). Through internet banking, registered customers can log on to the bank’s website on their accounts, and perform banking transactions Internet Banking is therefore valuable to banks as well as consumers, as there is increased efficiency in services provided to customers. Chung and Dutta (2012) found that Internet or internet-based banking has become quite common. Internet banking has been said to be convenient and cost-efficient. The growth of internet banking altered the distribution channel structure in the banking sector Giannakoudi (1999). Clienteles now have access to personal accounts, anytime anywhere.

Financial institutions in Zimbabwe like any from other countries, cannot turn a blind eye on information systems since they play a significant role in their operation. Customers are mindful of technological developments hence they demand higher quality services. Various studies conducted on the impact of mobile and internet banking on performance of financial institutions indicate that the adoption of internet banking subsequently boosted revenues and. This is attributable to improved efficiency, effectiveness and financial performance Olivia M. (2012).

2.6.4 Zimswitch and financial performance Zimswitch is an electronic platform for banks which allows use of electronic money through various platforms like the ATM, POS, MOBILE and Internet. It is a bank to bank system which permits transfer of funds amongst participant banks. Zimswitch operates on a real time basis connecting their Head Offices and Zimbabwean banks via a very secure network. This system can 17 handle high value, high risk payments and processes them accordingly On Zimswitch CBZ can be both an acquirer and issuer. An acquirer is a bank that accepts payment on its terminal/platform using Zimswitch. For instance, when a client from FBC uses CBZ terminals, CBZ will be the acquirer. The issuer (in this case FBC) is a bank who issues a card that is used to process a transaction on Zimswitch. Acquirer will receive payment and a net, Issuer will pay Zimswitch. Settlement is processed the following business day through RBZ using the RTGS system. Zimswitch innovation contributed widely to almost everything in commercial banks. Despite the recent cash shortages, an FBC Bank client could easily walk to a CBZ ATM machine and withdraw his/her money and settlements for the two banks would be done through Zimswitch. CBZ would earn transaction costs hence an increase in net sales.

2.6.5 Reconciliation and Financial Performance Reconciliation refers to the balancing of each day’s transactions in the suspense account for various banks by manually ticking the transactions on Zimswitch reports and the transactions which would have affected suspense accounts. For acquired transactions, the total debits should equal the credit that we post when settling. If there is a mismatch, we then manually tick the transactions to see which transactions are affecting and causing the mismatch. For issued transactions, the total credits should equal the debit we post when settling. If there is a mismatch, transactions are manually ticked to see which transactions are affecting and causing the mismatch. Reconciliation eliminates unnecessary costs and expenses and increase the balance sheet figure.

2.7 Product Innovation 2.7.1 ATM’s and Financial Performance (ATM) Automated Teller Machine also known as cash dispenser banking machine is an electronic telecommunications device which offers banking institution clients by means of access to financial transactions in a public space without visiting the bank. Joshua (2010) determined that ATMs were had the capacity of improving commercial bank revenues and service convenience to customers. ATM transactions are conducted over the phone line via internet connection normally called the lease line. All the ATM machines are globally interrelated with each other via financial institutions through the global ATM network like Master Card or Visa, as proposed by Sathye, M. (2005). ATMs, also recognized as Cash Points, to which they offer 24-hour nation-wide access to customers funds. For instance, FBC account holders can use their cards to withdraw cash from

18 their FBC savings accounts from any ATM with the Zimswitch sign. Similarly, CBZ clients can also retrieve cash from their ATMs. Thus, ATMs have been credited in reducing workloads and queues in the banking hall through the convenience service provided.

Through the use of an ATM, customers have accessed their bank accounts and have the privileges of making cash withdrawals, buying prepaid cell phone credit, credit card cash advances as well as check their account balances. Mabrouk and Mamoghli (2010) emphasized the importance of early adoption of financial innovation like ATMs to which he said contributed to banks performance. This use of ATMs has enhanced convenience since customers can withdrawal money from their point of reach without necessarily go to the bank. This also mitigates costs of transactions resulting in enhanced cashflows and better financial performance. This goes with Bankers association of Zimbabwe (2017) report of that indicated that ATMs used in banking sector serve about 420 million transactions yearly for a total of $2.3 billion in gross yearly revenues.

2.7.2 Debit Cards Usage and Financial Performance Debit card or bank card is a plastic card which allows its holder to access their bank accounts electronically. The use of credit card is an alternate form of making payments and obtaining cash. Nofie (2011) indicated that debit and credit cards had the potential to improving bank profits. Debit cards have gained prominence in the banking sector today due to their accessibility feature and their perfect match as a source payment in a turbulent Zimbabwean economy. Debit card improves efficiency as well as flexibility to customers. Agboola (2006) found that debit cards enabled banks to be efficient and aided them to earn more income largely through their retail channels. Clients can still have access to their bank accounts and other details without necessarily visiting the banking halls. This has attracted more customers since they enjoy banking services that are convenient and flexible.

Using the automatic debit payment facility one can have the convenience of using the clients existing CBZ Bank account to settle monthly card payments hence the linking of VISA accounts to flexcube accounts. TechZim (2017) indicated an increased in debit card usage in and profitability of the banking industry in form of ROA. The enlarged usage of debit cards has reduced transaction costs and improved convenience among credit and debit card users. This in turn has attracted potential customers leading to financial inclusion and increased sales and profitability.

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2.7.3 CBZ Touch and financial performance CBZ Touch is a mobile application available to CBZ bank account holders offered by the bank which to allow access to personal bank accounts information and the whole world of banking. CBZ Touch since its launch in 2016 has been widely credited for improving transaction handling and information asymmetry. CBZ annual report (2016) delineated the following features of the mobile banking application that is:

 View of personal and loan account balances  Funds transfers  School fees payments  Zimra Payments  pay bills (Dstv, ZESA payments)

Hernando and Nieto (2007) highlighted that implemented mobile banking attract more customers and this increase access to customer deposits hence leading to financial performance. CBZ Touch mobile application has significantly reduced the banks operating cost hence improving financial performance. Pegged at, over one thousand downloads, CBZ touch has been widely used for many banking functions proving to be a profitable asset and a revenue generator bank innovation.

2.8 Institutional Innovation 2.8.1 Changes in business structure and financial Performance Institutional innovation entails the changes in the business structure, changes in legal and supervisory framework and formation of new types of financial intermediaries Frame & Lawrence, (2001). “Noruz et al (2013) highlighted that organizational innovation positively improves business performance when they examined, transformational leadership, knowledge management, organizational learning, innovation and performance in Malaysian companies. Salim and Sulaiman (2011) also agreed that institutional innovation is positively linked to company performance ”.

Following the increase in use of digital cash, CBZ commercial bank has changed its business structure allowing the use CBZ touch, CBZ internet banking and Paynet to do transactions and fading away manual of RTGS and internal transfers. This was a notable move as it increases the banking tools widely, reducing cost and increasing efficiency, net sales and profits to the bank.

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2.8.2 New forms of financial intermediaries and Financial Performance Boachie-Mensahand (2015) noted that innovation in overall accounts for over 50 percent of the difference in firm performance. Precisely, the study establishes that institutional innovation among various types of innovation positively influence firm performance. The formation of new types of financial intermediaries strongly creates diversity and improve service delivery by commercial banks.

It can therefore be noted that CBZ like any other commercial bank has introduced some types of intermediaries like agent banking which has impacted mostly the financial inclusion goal for the firm. To further enhance CBZ performance, management ought to focus on the firm activities allied towards establishment of new types of financial intermediaries, renewing routines, procedures and processes in an innovative way in a firm.

2.8.3 New service structures and Financial Performance Locally, it is noted that commercial banks institutional innovativeness is “seen in mobile banking, partnerships, financial trainings, branch networking and opening up new branches enhance firm growth. It is ascertained that institutional innovation through restructuring of the institutions to purposefully serve the target market enabled commercial banks to enjoy economies of scale. More so, technology enable the institutions to cut down costs and reduce interest rates Mugo (2012). CBZ through its business banking unit, adopted institutional innovation hence becoming the source of solution to all round financial inclusion to the SME’s in Zimbabwe. CBZ have centers through the country that forms a widespread branch network and agencies that provides financial services that details business approach in modest terms ”.

2.9 Bank innovations and competitiveness of Commercial Banks According to TechZim (2017), the recent increase in volatility one key reason for the development of financial innovations. The need for commercial banks to innovate has increased due to an accelerated rise in technology. Therefore, financial innovation has become a necessity, more of a need to every commercial bank in Zimbabwe. Commercial banks provide the same product overall. If its mobile banking, it’s the same mobile banking from CBZ to Steward bank, likewise for all bank innovations. The need therefore is for each and every commercial bank to differentiate its product so that it becomes unique and superior to those of its competitors. A good example is the POS machine

21 competition for SME’s that commercial banks embarked on. With the growing rise in cash shortages in Zimbabwe and increase in the use of plastic money, Steward Bank launched a POS machine in January 2018, suitable for SME’s called ‘KWENGA’. The innovation was cheap, accessible and efficient and it received a very good response. The move by Steward took most of other commercial bank customers mainly SME’s which led to FBC launching its same POS machine ‘KWIK-POS’ in September 2018 followed by CBZ ‘KLEVA-POS’ in November 2018. This is a complete indication that financial is indeed essential for survival and competitiveness of commercial banks in Zimbabwe.

2.10 Financial innovation and the Banking Sector Muringi (2016) alluded that, in Zimbabwe, has the most ever shaking banking sector due to the unreliable and uncertain economic indicators. As of recently, Steward Bank and CBZ leads the pack in terms of providing banking services through implementing cutting edge technologies in their systems (TechZim 2016).

Presently in Zimbabwe, there's Zimswitch that could be an exemplar of however the sharing of front-end infrastructure will scale back prices of monetary services delivery and promote a cashless economy. This is network comprising sixteen-member banks with over four-thousand Zimswitch enabled location machines nationwide, found within the major regional and native shops and about four hundred Zimswitch compliant ATMs to which, a number of them set in remote areas monetary services are inside the reach of the many.

2.11 Empirical Review Financial Innovations and it impact on financial performance. A number of studies have been done to determine the impact of financial innovation on financial performance and Hernado M Nieto did a study on whether internet delivery has changed bank performance. A case of Spanish Banks (1994-2002)

Hernando and Nieto (2005) investigated performance of multi-channel banks in Spain and their discoveries reviewed that adopting internet banking has a large effect on the performance of banks as a delivery channel and time to appear. Hernado and Nieto purported that adoption of a transactional website indicates a positive impact on profitability which is essential in terms of ROA and ROE 3 years after adoption. They explained their findings further, including the lowering of overhead expenses which includes staff and IT costs computed the same period. Their study also

22 indicates that there is a lag period for positive profitability impact to evident on adoption of financial innovation through internet banking.

Kithaka, (2014) worked on a research paper targeted on the effect of mobile bank innovation on the money performance of Kenyan Commercial banks. “The most study objective was to stipulate the extent to that mobile bank innovation had an influence on financial performance. The author was attempting to elucidate the general implication of mobile bank innovation in respect to ancient banking transactions. The author showed unsolved problems in mobile banking and lowest examination on how the innovation is impacting banking transactions. The study adopted a census methodology whereby all commercial banks that had adopted mobile banking in Kenya were studied. The study created use of secondary information from audited financial statements and survey reports from banks. The conclusion of the study was that mobile banking features a positive and important impact on the money performance of banks in Kenya thus suggested that policy manufacturers ought to contemplate mobile banking in their formulation of policies. To the present day, study has created tremendous contributions to analysis within the field of mobile bank innovations and money performance. However, a niche remains in addressing the implications of mobile banking in a Zimbabwean economy. ”

Njogu J, (2014) did a research on the effects of electronic banking on profitability of Kenyan commercial banks. In his research, he used the descriptive research design to obtain data. The target populace of the study was 43 Kenyan commercial banks. A 5 years period research was undertaken using the secondary data from the published financial reports and also the use of a questionnaire distributed to the clients and bank stakeholders to collect the primary data. The data was also obtained from mobile banking statistics, natural log of total deposits for banks as well as point of sale (POS) and electronic banking reports. The research finds out that there is a positive relationship between the electronic banking system and the profitability that banks make. From the discoveries of the study, it was suggested that banks should adopt the use of electronic systems as they pose a positive return to the services.

Domeher et al (2013), investigated on the factors influencing financial innovation adoption of banking industry of Ghana. The research data was gathered using secondary data collection method, a survey conducted from 405 clients who used the six major banks in the country. The data was analysed using logistical regression, and the results from the findings show that

23 innovation qualities such as absence of difficulty, compatibility and apparent usefulness of financial innovation, increase the possibility of electronic banking acceptance. With reference to these results, the study recommended that banks ought to centre on designing both suitable and simple banking products that will attract the potential and current customers.

Mutengezanwa (2012), determined factors that influenced the embracing and usage of internet banking by consumers in Zimbabwe. The major objective of this research was to create a nexus on how same factors influence the custom of internet banking by user customer. A survey was used to gather the required data. The data was gathered using questionnaires that were administered to a randomly selected sample of 400 bank customers in using email and physical distribution. Findings of the research were presented using Microsoft Excel graphs, tables and was analysed using SPSS version 12. Research outcomes presented that security, accessibility, awareness and cost were the key aspects influencing adoption of internet banking. Therefore, the study suggested that the government should create a legal and regulatory framework that is supportive of e-commerce. Emphasis of the study was that, banks should participate in security improvement activities, improve customer alertness and also provide computer training at the physical delivery facility.

Mabrouk and Mamoghli (2010) conducted a study aiming at establishing the impact of emerging trends on the performance of banks . The research zeroed on the use of ATMs, Mobile banking and other technological innovations that facilitate the banking process. The research emphasized that those commercial banks that adopted innovations earlier had a higher performance when compared to those that adopted at a later stage. Perhaps, this might be justifiable of the first mover advantage. It is therefore important to note that technology changes so frequently and if banks lag to adopt, it may be detrimental because other better forms of technology will have emerged.

Hasan, Schmiedel and Song (2010) evaluated the performance of Italian multi-channel commercial banks in relation to traditional banks. The study was to examine the impact on bank financial performance when a transactional website was set up in the Spanish banking market. The aim was to find if internet adoption had a positive influence on bank performance, using ROA and ROE. Hernando and Nieto (2006) findings indicated that the embracing of the internet as a delivery channel lessens overhead expenses. Thus, the cost reduction improves the performance

24 of commercial banks after a year and a half prior adoption in terms of ROA, and after the lapse of three years in terms of ROE. Therefore, it can be noted that internet had been used mostly as a counterpart not a substitute for physical branches concurring with DeYoung (2005), indicating the major use of a multi-channel banking model.

Nyangosi and Arora (2011) was of the assertion that financial institutions adopted various electronic distribution channels to encounter the customers’ demands. Following their study in examining information technology adoption of banks in Kenya that focused on services mainly conducted over internet and mobile banking, they reviewed that information technology inclusion in banking business was essential to attain excellence goals. Nyangosi and Arora (2011 further revealed that ATM innovation is the most widely used technology while SMS banking was said to be the next valuable bank innovation tool.

Adano (2012) examined the connection between versatile cash exchanges and financial development in Kenya. The examination investigated versatile managing an account explicitly as it identified with neediness decrease procedures in creating nations. It talked about ascent of cell phones, how versatile cash works. Utilization of versatile cash as destitution decrease system, different employments of portable cash and beating difficulties of versatile cash. The investigation adjusted a quantitative structure. Adano (2012) further spotlights on versatile cash organizations' populace which included six cell phone administrations suppliers. The measure of organizations giving administrations expanded from one in the year 2007 to six before the finish of year 2012.The measure of versatile cash exchanges expanded from 0.06 billion (2007) to 118.08 (2012). In light of the potential advantages of versatile cash the examination further suggested that administration sponsor the development of neighbourhood portable foundation and receive strategies that supports the arrangement of portable systems and utilization of these systems.

Wairagu (2011), did a research on the relationship between bank profitability and financial innovation in Kenya. The researcher used the entire population of Kenya counting to 40 commercial banks to collect the data hence he used the casual research design to gather the data needed for the success of the research. The researcher used the entire population because he had the resources to use. The research used primary and secondary methods to gather the data needed for the research. Wairagu (2011), collected primary data using the questionnaire and interviews while the secondary data was obtained from published financial reports by the of

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Kenya as well as the commercial banks of Kenya. The study carried out shows that there is a positive relationship between profitability and financial innovation. The researcher recommends that banks should be involved in innovation and diversification of their products and services to improve their performance.

2.12 Research gaps The present study acknowledges the scholar efforts placed in previous studies relative to financial innovations. A study by Mugo (2012) indicated that institutional innovativeness discovered in mobile banking, financial trainings, partnerships, branch networking and gap up new branches enhance firm growth. The limitation of the study is that the undeniable fact that institutional innovation has not been connected to performance instead it's been associated with growth of corporations. In reference to product innovation, Chemitei (2012) work the role of product innovation in making competitive advantage financial institutions. Despite product innovations not ensuing to profit, it's noted that development, management approaches, potency in serving customers and coaching contribute to profit, increased market share and revenue. a transparent limitation of the findings in reference to the present study is that the undeniable fact that it did not verify the impact of product innovation of performance of commercial banks. Innovation is an infinite aspect. Each day, each minute there is some form of innovation taking place and one can never fully exhaust its spectrum, there is always room for more study.

2.13 Chapter Summary This chapter started by defining financial innovation and financial Performance, cited the three broad types of innovation which are product, process and institutional innovation. The author went on to describe various bank financial performance indicators. Much emphasis was given to the linkage and direct impact of various bank innovations to the performance of commercial banks. Various authors who have written on the subject matter seem to agree on the topic to a larger extent. The chapter presented the theoretical and empirical literatures that are relevant to the current study as well as research gap.

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CHAPTER III

RESEARCH METHODOLOGY

3.0 Introduction

This chapter describes the methods that were used in carrying out the research study. The research design, target population, sampling techniques and sample size are analyzed. The chapter also outlines the actual data sought, the sources of such data and the instruments used in collecting the data. A vibrant and concise explanation of how the study was carried out is shown that is construction of research instruments, validity and reliability, data collection techniques, data analysis and presentation.

3.1 Research Design A research design could be a program laying down the strategies and procedures for collection and analyzing the required info Bell, (1995). Therefore, the research design provides a blueprint for answering objectives of the research thus offers a framework for the analysis arrange of action. During this study descriptive analysis design was used.

3.1.1 Descriptive research design Descriptive research describes questions, people surveyed and the technique of analysis at initial data collection. Its main focus is the relations that exist, processes that are going on, opinions that are held, and effects that are evident Best and Khan, (1993). The rationale for selecting this design is grounded on its capability to produce better techniques for a systematic assortment of knowledge of respondents through administration of questionnaires. Descriptive research design was used in this study as it shows characteristic behavior of one variable in relation to another as highlighted by Kothari (2005). The design was appropriate in establishing the impact of financial innovation on financial performance of CBZ commercial bank thus enabling the researcher to use both primary and secondary data. 27

3.2 Research Approach

The researcher used both quantitative and qualitative research approaches in this study. A Mixed research method was implemented to cater for strengths of the two approaches but concentration was mainly quantitative approach. “Qualitative research involves use of data that can be quantified and involves limited probing and larger sample sizes. Thus, quantitative research is about statistical and summarization study and data is measurable and objective. ” It stresses great ability to gather more data from descriptive and casual research Patton, (2002). There researcher had to compile data relating to profits and revenues of CBZ Commercial Bank as well as ascertain data from respondents of various departments under study which proved to be a large quantitative study.

The disadvantage of quantitative research approach was dealt with using the qualitative research approach. Cooper and Schindler, (2005) refers qualitative research as building complex data, holistic pictures and words, and reporting detailed views of informant. Mytton (1992) further highlighted that quantitative research involves the usage of probing questions, small sample size, subjective and explanatory analysis. The researcher used qualitative data to gain more informed insight and a better understanding about respondents’ attitudes and perceptions and was conducted through use of interviews and questionnaires. Qualitative research therefore eliminates irrelevant areas from larger scale quantitative research. It also tests behavior and attitude range that cannot be tested using quantitative data. Largely qualitative data shows a richer range of responses that address the problem.

3.3 Case study justification

Oxford dictionary (2018) defined a case study as a specific instance of something used or investigated in order to demonstrate a thesis or principle. The case study is essential for research as it gives accessibility to the organization which will provide the researcher with an in-depth appreciation of the organization needed to make thorough analysis of the findings used to propose recommendations for further research. Saunder’s (1997) highlighted, a case study provides the researcher with a large amount of information from a substantial population in a cost-effective

28 way. Henceforth in this research a case study of CBZ Bank Limited, a commercial bank in Zimbabwe was for data findings.

3.4 Primary sources This is data attained from the original source. Emphasis by Collins et al (2000) is that, there is need to ask people to what they think. In this study the data gathered comprised of discoveries attained from original sources, which are interviews with the particular sample as well as questionnaire answers. Collection of primary data is very dependable as it helps provide relevant and up to date information regarding the topic under study. However, primary data maybe costly as it requires travelling and meeting, relevant people vital study information. Primary Data of this research was obtained from CBZ E-Banking staff and heads, Finance Department staff, CBD CBZ branches, CBZ IT staff as well as a few selected members of Steward and FBC bank.

Justification for the use of primary data

Primary data collection is very reliable as it provides relevant and current information in relation to the topic under study. Respondents may not answer the questionnaire with the thought of the researcher divulging the statistics to competitors which is a threat to the firms’ competitive advantage. For instance, the topic under study requires vital information on the operation of a commercial bank, hence respondents may full convincement that it was for academic purposes.

3.5 Secondary Sources

Secondary data refers to resources that are derived from someone other than the original source. Secondary data is information collected and administered by others scholars for different purposes Du Plessis, (2001). Secondary data is therefore subjective henceforth the information must be cross checked for accuracy. In this study the researcher used of company documents, published financial statements, Commercial bank reviews, cash management journals, financial innovation journals, financial gazette, the internet, textbooks and other documents from the Reserve Bank of Zimbabwe.

Justification for the use of secondary data

Secondary sources provide data of higher quality that has been prepared for from extensive research and put through scrutiny for credibility, window dressing, misrepresentation and prejudice. Furthermore, secondary data was cheaper and it was non-time consuming to use data

29 from such as compared to that collected by the researcher. The sources also helped in designing the questionnaire for the survey. Not all secondary data obtained was used, some was irrelevant and was screened.

3.6 Data collection instruments

Kotler (2000) indicated four major technique tools for collecting primary data that is, Observation, focus groups, surveys through questionnaires, personal interviews. and experiments Questionnaires and interviews were the main research instruments used in this research.

3.6.1 Questionnaire

Questionnaires were a comparatively inexpensive and easy way to manage data collection. Morris and Wood (1991) indicated the questionnaire as the most generally used primary data collection technique. This instrument portrayed a guiding role for data collection from respondents for surveys and interviews. The questionnaires drafted had closed and open-ended questions. The researcher administered fifty sixty questionnaires in total. The researcher used hand delivery in administering the questionnaires and collected them personally too. This fostered a closer follow up and wide discussion matters such as confidentiality while others required clarity on the study purpose. Closed questions helped the respondents to specify their views from given. Open ended questions permitted respondents to answer question extensively in their own words. The questionnaires included instructions for respondents on how to answer.

Advantages of Questionnaires

Questionnaires provided greater flexibility. Respondents had ample time to answer questions separate of the daily compression of work. They also lowered costs as they were cheaper to administer. They provided uniformity as each respondent received the identical set of questions. In other words, they were responding to the same stimuli.

Disadvantages of Questionnaires Questionnaires were a bit complex as some questions were found to confuse respondents and needed further explanations. Also, some respondents took more time to answer to the questionnaire which delaying data analysis. Nachmias and Nachmias (1985) emphasized that questionnaires can only be used when the questions are straightforward. Some interviewees were reluctant to answer

30 questions, that they thought was not going to benefit from responding. Questionnaires therefore cannot be used with illiterate or blind people as this may introduce bias in sampling since the sample will not be representative. Open ended questions produced large amounts of data that required more time for the researcher to process and analyses.

Steps taken to ensure success of questionnaires:

In this study, all respondents were literate. The questionnaires were drafted in brief format making them precise and straight forward to avoid confusion by respondents. Questionnaires are only useful as instruments for data collection when they are straightforward and easy to comprehend. The questions were carefully structured in order to capture all the data required. Respondents were told why the information is being collected. The researcher also minimized the number of open- ended questions. Respondents were emphasized to respond honestly and told that if their response is negative it does not matter, it is a useful opinion. The questionnaire was made anonymous. Appropriateness of the Questionnaires to the Study

Given above analysis of the enjoyed advantages, and suffered disadvantages of a questionnaire, the researcher found himself enjoying more advantages than disadvantages in using the questionnaire. It was considered to be the best instrument that facilitated the answering of the research questions in this study.

3.6.2 Interviews

This is a personal interaction with respondents and probing them on a particular subject matter. Interviews involve a set of questions pre-pared for various interviewees. The researcher chose the method because it ascertains values, attitude and experiences from management. It helps interviewer to observe non-verbal behaviour. Personal interviews were used to collect data from the CBZ commercial bank and nine interviews were done in total one being with an FBC Branch manager and the other two with Steward Bank IT personnel. Some interviews were also done through the telephone. The researcher made appointments and interviews were conducted. This method enabled the researcher to probe respondents deeper for elaboration and more extensive responses. The researcher had time to adjust and rephrase some of the questions for clarity.

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The researcher used a semi-structured interview method. Semi-structured interviews give room for the interviewer to develop new ideas, adjust questions and change direction as new insights emerge. The pegged time ranged from 10 to 15minutes. Respondents answers were recorded on for analysis and presentation.

Advantages of interviews

Interview allows great flexibility in the questioning process. They also have great flexibility in terms of sampling and special observations hence the greater the flexibility, the less structured the interview. Borg and Gall (1993) highlighted that a researcher can use interviews to get immediate feedback from respondents. Interviews also provide the opportunity to persuade for answers and can also exposed the researcher to some key elements that he had not been thought of before.

Disadvantages of interviews The expensive nature of interviews affected the sample size, making it smaller than the sample for questionnaires. The researcher also noted that interviews were time consuming with arrangements being difficult to make and some scheduled interviews being cancelled due to tight schedules on the part of management. Interviewer bias can be misleading. “Interviews needs careful management as a lot of time can be lost on issues that are not relevant to the research. Another drawback was that non-verbal behavior was sometimes misinterpreted leading to in accurate conclusions. However, the researcher stipulated to time allocated in conducting the interview and at the same time sticked to questions on the interview guide. ”

3.7 The Population 3.7.1 Population Population “is an assortment of all observation of a random variable under study and about which one is trying to draw conclusion in practice Kotler, (1996). According to Peterson (2002), population could be a cluster of objects study that a researcher is interested regarding once ending a research project. population comprises of elements or units under investigation for a specific study. In this regard, the population comprises of the 1 (one) commercial bank in Zimbabwe, case study of CBZ Commercial Bank. ”

3.7.2 Sampling Green et al (1988) says that sampling is the act, process or technique of selecting a suitable sample or a representative part of a population for the purpose of determining parameters or characteristics

32 of the whole population sample. Sampling is the method of selecting individual sample members, sample size and sample frame. A frame as represented by Sudman and Blair (1998), could be a list of systems that identifies each member of the population in order that a sample may be drawn while not essentially contacting every member of the population. The researcher used probability and non-probability sampling techniques.

3.7.3 Sample size Crouch and Houdsen (2000), defined a sample as a partial number taken from a large group for testing and study on the assumption that the sample can be taken as a true and fair demonstrative of the whole population. The research population size for this particular research is on those in E- Banking, Finance, IT, Internal audit department and some on managerial level in branches. A sample study CBZ staff who handle or have access to financial data and also those who were employed by the bank for the period of the study. Good and Hart, (2013) indicated that sample of more than 50% of the total population should yield reliable results.

Table 3.1 Sample population constitution

Sample (heads and staff) Population Sample size Sampled population rate (%) E-Banking & card services 25 23 92 CBZ Finance 20 14 70 CBZ IT 15 10 67 CBZ Branch managers (CBD) 3 3 100 CBZ Internal Audit 7 5 71 Total 70 55 79

Source: Primary data

The research from table 3.1 above indicates 79% of the total sampled population which is a good representation of the target population, exceeds 50% of the target population. Purposive and stratified sampling was used to select the sample.

3.7.4 Stratified Sampling Where the population or respondents embrace variety of distinct classes, the frame may be organized by these classes into separate strata Cochran, (1977). A sample is then designated from

33 every stratum singly, manufacturing a representative sample. The investigator opted for this sampling technique to make sure that explicit groups among a department are adequately represented within the sample, and additionally to boost efficiency by gaining control of the composition of the sample. The sample size is sometimes proportional to the relative size of the strata. In view of the classes involved within the sampling frame the investigator had to use the stratified sampling methodology. Thus, during this regard, the departments had equal chances and possibilities of selection.

3.7.5 Purposive Sampling Creswell, (2007) alluded that in purposive sampling, the researcher intentionally picks individuals to learn and understand the central phenomenon hence it enables the researcher to use his or her judgement to select the sample that will best enable one to answer the research questions Purposive sampling was used by the researcher also in the study where all the employees of CBZ where selected. The researcher conducted simple interviews with CBD branch manager or head of departments. Questionnaires were given to the rest of the CBZ employees.

3.8 Reliability of the research instruments Reliability relates to the extent to which a particular data collection approach will yield the same results on different occasions, (Lancaster, 2005). Where the information given may be limited raising doubts its reliability and validity the other related concept is interviewee whereby the interviewee attempts to construct an account. To ensure the reliability of the data all respondents answered similar questionnaires so as to guarantee uniformity with rewarding being the difference for some. To help compare the reliability of data collected through interviews. The researcher was cautious on the type of question to ask.

3.9 Validity of the Research Instruments This is the extent to which a concept, conclusions or measurement is well founded and clearly corresponds precisely to the real world that is the validity of a measurement tool. It is said to be the degree to which the tool measures what it claims to measure Mugenda et al (2009). The study sought to describe the content validity of the research instrument. Questionnaires were administered to CBZ Commercial bank employees who know the data and information about the bank and their response have high percentage of accuracy and can be relied on. Given that the

34 content validity cannot be statistically and purely determined, the researcher sought the expert opinion from the university supervisor.

3.10 Data Processing and Analysis Procedures Due to the rawness of data, questionnaire entries had to be managed before being applied into an analysis. Data management involves processing and coding of responses. Results from the research were presented through tables and charts. Charts were divided into sectors showing comparatives. frequencies hence were also used for comparisons. Diverse kinds of graphs were also included in data presentation. Percentages, standard deviation, mean and tabulations, were put in use to present the data findings. Correlation analysis was included to establish the relationship between independent and dependent variable under study. In determining measurements, the researcher used a five-point Likert scale as follows; 1 Strongly Disagree, 2 Disagree 3 Indifferent, 4 Agree, 5 Strongly Agree. Research findings were worked and edited then evaluated using Microsoft excel and SPSS to which conclusions and recommendations were drawn.

3.11 Pilot Test This is a small-scale initial study which is done in order to assess the practicability, time, cost, opposing events and the effects in an effort to predict a suitable sample size and implications of the study design. A pilot study is done prior to performance of a full-scale research project to determine and hedge the risk of an uncertain outcomes Johnson, (2012). Pilot testing was done on questionnaires with some of the attaches to evaluate the impact of questions, response and perception of CBZ bank employees towards the research study, thus enabling the researcher to assess the quality of the response and to enhance reliability and quality of data to be collected. 3.12 Ethical Considerations Respondents were notified of the intentions, methods, expected benefits and hazards associated with the research. They also notified of individual right to refrain or terminate from partaking in the research. Confidentiality nature of replies was guaranteed. 3.13 Chapter summary This chapter discussed the methodologies to the study. It examines the research design data collection method, population, sample and sampling method. Data collection was centered on a sample of respondents who comprised of CBZ Commercial Bank employees. The questionnaire responses were coded and then tallied question by question. Tables and graphs were then constructed from the data as shown in the next chapter. The data was collected using multiple

35 methods so as to enhance validity of data concerning financial performance of CBZ Commercial Bank in Zimbabwe. The next chapter will therefore look at the result, present and analyze the data

CHAPTER IV

DATA PRESANTATION, ANALYSIS AND DISCUSSION

4.0 Introduction

This chapter emphasizes in the presentation of data attained through primary and secondary data collection. The data is then analysed and discussed consistent with the research objectives that are outlined in chapter one. Numerical descriptions that include line graphs, bar charts and construction of tables was used. The chapter also outlines the important findings in relation to the research objectives and analyse findings citing gaps.

4.1 Targeted population response rate

4.1.1 Questionnaire response rate

The “response rate shows the percentage of questionnaires, that were completed and collected by the researcher for data compiling and assessment in regards to the actual number of questionnaires distributed. Data gathered by the researcher yielded the following results. ”

Table 4.1 Questionnaire response rate

Number of Questionnaires Percentage Distributed 60 Received back 55 92% Missing/Spoiled 5 8% Effective response rate 55 92%

Source: primary data

The response rate gives the researcher indications on whether meaningful conclusions can be made from the responses. A higher or moderate response rate, usually gives the researcher a reason to

36 rely on the data. From the survey, as shown by Table 4.1 , 60 questionnaires were disseminated to the sample population and 55 were given back, 3 where returned with missing data and 2 went missing. Response rate was slightly lower than expected due to several constraints, but however the 92% response rate illustrated in Table 1 is very ideal for the study.

4.1.2 Interviews response rate

Table 4.2 Interviews response rate

Interview Respondent Response rate

Face to face 7 75% Telephone 2 25% Total 9 100% Source Primary Data

A total number of nine interviews where done 7 face to face and one telephone interview. The response rate was 100% hence this was satisfactory for a comprehensive analysis as shown on table 4.2 above.

4.2. Position in the organization

Table 4.3 Position held in the organization by respondents

Position Frequency Response rate %

clerks 30 40

officers 16 20

Branch Managers 3 25

Senior Managers 8 10

Departmental managers 3 5

Total 60 100%

Source Primary Data The Table 4.3 above illustrates that clerks had 40% a higher figure due to their number in the organization. Officer had 20% whilst branch managers had 25%. Senior managers had 10% and Departmental managers had a response rate of 5%. The researcher was satisfied with the

37 composition of study participants as there was representation of all employees and management. Positions were essential in this study since most managers had a lot of information and access to some confidential information that was vital in carrying out this research.

4.3 Level of experience of Respondents Table 4.4 Level of experience of Respondents

Experience Frequency (f) Percentage (%)

1-5 18 30

5-10 30 50

10 and above 12 20

Total 60 100

Source : Primary data Findings from Table 4.4 indicate that 30% of respondents had experience of 1-5 years, 50% of the respondents had worked in CBZ commercial bank for 5 years to 10 years and 20% have served for over 10 years. This indicates that nearly all respondents had passable time in service therefore providing reliable data. Smith, (2009) alluded that a study performed with respondents who have a lengthy experience in a given industry is suitable to provide truthful results, hence can be relied on in solving a given problem.

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4.4 Product innovation effect on profitability of CBZ Bank

4.4.1 The need for Financial Innovation by CBZ bank.

ARE BANK INNOVATIONS NECCESSARY? DOES CBZ BANK REQUIRE FINANCIAL INNOVATION?

NO 0%

YES 100%

YES NO

Figure 4.1 The need for Financial Innovation by CBZ bank Source: primary data

The response rate of the research was 100%. Using the data from the pie chart above, Figure 4.1, it shows that there is need for CBZ to adopt mobile and online banking. All the participants agreed that their bank need this product innovations as it contributes largely to the profit and their competitiveness as shown by the pie chart, 100%. The findings indicate the applicability of the TAM model which states that the potential ease of innovation products and services acts as a driving force for their adoption

4.4.2 ATM and Debit and Cards Usage

From the study, the majority of the population sample agreed that ATM and Debit Cards Usage had an impact on commercial banks revenue base. From the Transaction cost innovative theory electronic cards are said to enhance ease of access and generate transactional cost which is revenue to the provider. These findings are also consistent with the advantage to the bank to which they say the use of Debit at E-POS encourage consumer spending. On the same contrary BAZ (2017) indicated that numerous innovations have been adopted over time and among them was the expansion of credit card usage and the development of Automated Teller Machines (ATMs). Thus, if charge of an ATM is pegged at $2.50 all through the last 3 months and commercial banks handled 3,134,486 ATM transactions, basic mathematics indicates ATM withdrawal proceeds of

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$7,836,215. Excluding tax charged by the government of 0.05 per transaction which is $156,724, remaining revenue will be over $7.70 million. Thus, a lot of profit.

Table 4.5ATM and Debit and Cards Usage Frequency

Frequen Percen Valid Cumulative cy t Percent Percent

Val disagree 2 3.33 3.33 3.33

id Indifferent 8 13.3 13.3 16.63

agree 20 33.3 33.3 49.93

Strongly disagree 30 50.0 50.0 100

Total 60 100.0 100.0

Source: Primary and Secondary data

From the survey, as shown by table 4.5, 50% strongly agree the use of ATM debit card usage impact to commercial bank financial performance. About a quarter (33.3%) simply agree that ATM and debit card usage have positive impact on commercial bank profitability and 13.3% are indifferent. The last 3.33% disagreed the assertion. From the interviews both of them highlighted that cards are being faced out by mobile and internet banking hence their contribution to profit has reduced.

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4.4.3 Performance benefits that are gained through ATM and Debit card usage

80% 70% 70% 60% 60% 50% 50% 50%

40% 35% 30% 28% 30% 20% 20% 15% 10% 12% 10% 10%

0% Financial Freedom Efficiency Customer Satisfaction Financial Inclusion

indifferent strongly agree agree disagree

Fig 4.2 Performance benefits gained through ATM and Debit card usage Source: Primary data

Financial Freedom

As shown in Figure 4.2 above, Financial freedom is another benefit obtain through the adoption of ATM and debit card usage indicated by a total of 80% agree response rate. Financial freedom entails the use of transacting without cumbersome effort or hustle. Traditionally people used to stand long queues to withdraw their cash from banks, some had to carry books but that was all faced out by the adoption of ATM and the use of Debit cards. CBZ to ensure financial freedom have distributed over one-hundred ATMS to their branches and strategic public areas like the airport for ease use. Steward Bank has been noted to be the highest innovative bank through its subsidiary Econet has also administered many debit cards the least targeting students.

Efficiency

With reference to Fig 4.2 above A total of 88% (60%, strongly agree,28% agree) of the respondents are of the view ATM and Debit card usage brings efficiency to commercial banks. This concurs with Zhou and Wang, (2010) who highlighted the adoption of that e-banking and card system would better services provided clients. ATM are an easy way to retrieve your money conveniently. The motive is bringing the withdrawal function of commercial banks right were clients need it the most hence ATM are located in the streets, shopping mall and train stations so as to increase

41 efficiency. Likewise, the use of debit cards has been widely adopted almost every corner of the world. This goes in line with Central Bank of Kenya (2011) which indicated a rise of automated teller machines from 166 in 2001 to 2091 in 2010 and a debit cards increase from 160,000 in 2001 to above 6 million cards by year end 2010. Respondents from the study agreed that ATM and debit card usage has increased performance of commercial banks in Zimbabwe as shown form Fig above.

Financial Inclusion

As shown by Figure 4.2 above, 50% of the respondents strongly agree and 35% of the respondents agree that financial inclusion is a performance benefit gained from ATM and debit card adoption. 15% is uncertain whether financial inclusion is a performance benefit gained through from ATM and debit card. A total 85% of the respondents are of the opinion that from ATM and debit card usage fosters financial inclusion. The benefit of financial inclusion is enhanced by shift of commercial banks from traditional banking to digital banking, everyone is eager to try out the new era of banking. This concurs with Davis, (1989) Technology Acceptance Model (TAM) which explains how perceived usefulness of a particular system would improve a person job or task.

Customer satisfaction

Fig 4.2 above indicates that 70% of the respondents strongly agreed and 20% agreed that there is improved customer satisfaction due to ATM and card usage. A meager 10% of the respondents were indifferent. A total of 90% believed that commercial banks have realized improvement in customer satisfaction due to the adoption of mobile ATM and card usage Loh and Koh, (2013) were of the view in line with this, “that quality of services offered to clients has an impact on the organizational performance. Efficient business processes as well as high quality services are as a result of enhanced sales margin leading to an overall improvement in an organization financial performance. Decision can be deduced that ATM and card usage adoption lead to improved customer service. ”

4.4.4 CBZ Touch and acceptability by customers Following interviews with several E-Banking staff, the researcher noticed that most transactions and responses were directed to CBZ touch application. It therefore indicated that the innovation by CBZ was a tremendous therefore the researcher did background check on the statistics and acceptance of the mobile app. Findings reviewed the following data;

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Table 4.6 CBZ Touch and social media statistics

Social Media Platform 2017 2016 Facebook 80,500 24,500 Twitter Followers 5,501 2,390 CBZ Touch registrations 390,439 37,396 YouTube subscribers 104 - LinkedIn subscribers 202 - Source: CBZ annual report 2017

Table 4.6 above shows CBZ Touch statistics from registrations to social media variations of Facebook, twitter, YouTube, and LinkedIn from its launch in 2016 to 2017. Registrations increased from 37,396 in 2016 to 390,439 in 2017. This is an indication of the increased demand for the mobile application which provides most banking facilities in one package. The increase in registration is evidence by the demand-supply innovation theory by Tidd (2006) which highlights that innovations are created as a response to demand. Facebook fans reached 80,500 in 2017 from 24,500 in the initial year. Twitter followers grew with about 80% from 2016 to 2017 (2.390-5,501). YouTube and LinkedIn subscribers are still growing and as at Dec 2017 YouTube had 104 subscribers whilst LinkedIn had 202 subscribers.

4.5 Financial Innovation and competitiveness of CBZ bank.

4.5.1 New Service structures

Indication of research findings from Figure 4.3 below, shows that through institutional innovation CBZ has embarked on more partnerships constituting 62% as shown in Figure 4.8. In a statement, CBZ by then (2016) CEO Dr Never Nyemudzo called for partnerships in the industry. To date CBZ has done many partnerships and has strengthened the brand name.

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Figure 4.3 New Service structures and competitiveness of CBZ bank

Institutional innovation

12% 1% partnerships, new branches 25% 62% Supervisory and Legal Framework Financial intermediaries

Source Primary data and CBZ Annual Report 2017

Also, opening of new branches (25%) as illustrated on figure4.3 has also been started and new and improved facilities are being installed in those branches. One good example is Kwame Nkrumah branch which has been equipped with self-service digital facility. Customers can now do their Banking on the go, with a bank provided tablet that pay bills, make transfers as well as update accounts. Following questionnaire responses, respondents where strongly in favour of the digital innovation transformation and noted that it has increased efficiency and profits

4.5.2 Point of Sale Machines Figure 4.4 Point of Sale Machines and competitiveness of CBZ bank

Source Primary Data and Secondary Data

44 Figure 4.4 shows research findings on the race for SMEs point of sale machines between CBZ bank, Steward bank and FBC bank. Steward bank being the pioneer had most clients of 44%, followed by CBZ had 39% and FBC which had 17%. Indications show that there is need to adopt financial innovation for continued survival and competitiveness of the Bank.

4.5.3 Product innovation frequency of usage Table 4.7 Product innovation frequency of usage Source: Primary data

Product innovation Frequent Percent Cumulative CBZ POS machines 10 17 17 Debit cards 15 25 42 ATM 17 28 70 CBZ Touch Mobile App 18 30 100 Total 60 100

Table 4.7 shows adaptability of product innovation in CBZ commercial bank, 17% of the respondents enjoyed bank innovations through CBZ POS machines. Debit cards recorded a quarter of the rating 25%, whilst 28 % of the respondents favored the use of ATM. The use and demand of ATMs is on the verge of growing rapidly due to growth in cashless payments hence forecasts tell that cash withdrawal volumes will continue increasing in several countries in the next foreseeable future. CBZ Touch mobile app had a largest usage and adaptability indicated by 30%. The finding further corresponds with the those of Suoranta and Mattila (2004) who found out that that mobile banking is the widely used bank innovation nowadays.

4.6 Impact of process innovation on the revenue of CBZ Bank

4.6.1 Process innovation and its impact on CBZ cashflows

Process innovation is one notable driver of CBZ increased cashflow. From the study as shown by Fig 4.5, below, Automation and Zimswitch were huge contributors to CBZ revenues with a total 60% respondents who strongly agreed to the assertion. Mobile and internet banking recorded a 50% and of those who strongly agree and lastly reconciliation which had 45%. This concurs with Rogers, (1995) and his Innovation Diffusion theory which he said it helped describe automation of services conveyance by commercial banks.

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Figure 4.5 Process innovation and its impact on CBZ cashflows

45% RECONCILIATION 25% 10% 20% 20% AUTOMATION 60% 5% 15% 60% ZIMSWITCH 30% 0% 5% 50% INTERNET BANKING 45% 0% 5% 50% MOBILE BANKING 40% 0% 10% 0% 10% 20% 30% 40% 50% 60% 70%

MOBILE BANKINGINTERNET BANKING ZIMSWITCH AUTOMATION RECONCILIATION strongly agree 50% 50% 60% 20% 45% agree 40% 45% 30% 60% 25% Indifferent 10% 5% 5% 15% 20% disagree 0% 0% 0% 5% 10%

Source: Primary data Process innovation smoothies out transaction mainly on the bank part, processing payment, updating and balancing accounts as well as configuring customer accounts. Systems put in place form traditional manual input to digital input has seen a sharp rise of CBZ cashflows from 2013 to 2017 as a result of increased effectiveness and efficiency. This was confirmed by annual reports and interview data obtained from the E-Banking unit.

4.7 Impact of institutional innovation on the revenue of CBZ Bank 4.7.1 Descriptive Statistics, Institutional Innovation and revenues

N Minimu Maximu Mean Std. m m Deviatio n new type of 60 0 1 .93 .252 intermediaries new service structures 60 0 1 .82 .390 changes in Business 60 0 1 .88 .324 structure 60

Source: Primary data 46

Table 4.8 Descriptive Statistics of institutional innovations and CBZ revenue

The mean distribution and Standard Deviation for the three institutional innovation was computed as shown in table 4.9. New type of intermediaries had a mean of 0.93 respondents and the standard deviation of was0.252 as shown by table 4.9 above indicating that most respondents directed it to revenue contribution of CBZ Bank. New service structure had a mean .82 and SD of .390 whilst changes in business structure indicated a mean of .88 and SD of .324. Overall Impact of financial innovation on Profitability of CBZ bank

Table 4.9 Ascertaining performance of CBZ bank for the last 5 years

Response Frequency (f) Percent (%)

Strongly agree 30 50

Indifferent 10 16.7

Agree 20 33.3

Total 60 100

Source: Primary Data, 2016 Table 4.9 shows how CBZ bank has been performing for the last five years. All the respondents (100%) stated that performance of CBZ bank for the last five years was very good. Fifty percent of the respondents strongly agree that financially CBZ was doing well, whilst 16.7 percent were indifferent. The last 33.3 percent rated the agreed to the ascertation. Overally this implies that the bank has been performing well for the last five years.

4.7.2 Descriptive statistics of bank innovation on profitability of CBZ Bank

From the findings presented on table 4.11 below mobile banking had an impact on CBZ bank profitability with (mean 0.83;.376 SD). The findings further deduced that internet banking had a major impact on CBZ Bank Cashflows and revenues (mean = 0.92; SD = 0.279). The findings further indicated that reconciliation had an impact on CBZ profitability with (mean 0.70; .462SD). Debit card usage reviewed (mean 0.82, 0.390 SD), ATM indicated (mean 0.92, 0.279 SD).

The study outcomes further revealed that, CBZ new intermediaries through institutional innovation has contributed to the banks financial gain as shown by (mean= 0.93; SD= 0.252). New service 47 structure recorded a (mean 0.82, SD 0.390). Respectively, changes in business structure also indicated to have a great contribution to the adoption of financial innovation by commercial banks recording a (mean 0.88; SD=0.324). Internet banking recorded (mean 0.97, SD 0.181). Lastly, banking sector reviewed that it benefited through new and improved financial products with a mean of 0.90 and an SD of 0.279. Overall statistical findings goes with Nyangosi and Arora (2011) assertion that financial institutions adopted various electronic distribution channels to encounter the customers’ demands thus earning their satisfaction and tolling sales and profits

Table 4.10 Descriptive statistics on the impact of bank innovation on profitability of CBZ commercial Bank

Descriptive Statistics N Minim Maxim Mean Std. um um Deviation mobile banking 60 0 1 .83 .376 internet banking 60 0 1 .92 .279 reconciliation 60 0 1 .70 .462 Debit card usage 60 0 1 .82 .390 ATM 60 0 1 .92 .279 CBZ touch mobile app 60 0 1 .88 .324 new type of 60 0 1 .93 .252 intermediaries new service structures 60 0 1 .82 .390 changes in Business 60 0 1 .88 .324 structure internet banking 60 0 1 .97 .181 Automation 60 0 1 .92 .279 new and improved 60 0 1 .92 .279 products Valid N 60

Source: Primary Data

4.7.3 Financial performance Ratios

Table 4.11 CBZ 5-year financial performance ratios

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YEAR RETURN ON RETURN ON NET INTEREST RETURN ON ASSETS (%) EQUITY (%) MARGIN (%) CAPITAL%

2013 3.0 7.2 5.8 4.9

2014 3.15 7.69 4 5.79

2015 3.43 8.24 5 6.25

2016 3.79 8.83 5 6.61

2017 4.39 9.97 6 9.90

Source: CBZ annual reports (2013-2017)

Table 4.11 above shows the trend of the CBZ bank performance. There were increase in the return on assets from 2013 to 20167 this is due increased financial innovation, inclusion and deepening adopted by the bank as well as investment in research and development through opening of new delivery channels. Furthermore, findings also show that there was a steady increase on return on equity from 2013 to 2017 which is accredited to turbulence in the financial and economic sector. Net profit margins incurred a drop and steady increase as the years progressed recording the highest in 2017. Analysis of the research findings par with Hernando and Nieto (2005) to which he emphasized the adoption of a financial innovation transactional website has a positive impact on profitability that is significant in terms of ROA and ROE of bank in long run. All in all, CBZ financial performance is good and this gives clear indication that investing in commercial banks in Zimbabwe is profitable. 4.7.4 Analysis of profit From Table 4.13 below, CBZ annual revenue growth showed constant increase from 2013 -2017 recording a total increase of 3.42% in annual revenue change and $155.1 million increase in revenue. CBZ Financial statements (2017) indicated that fall 2016 there had been 26 billion transactions to which CBZ alone accounted for 35 % of the national transactions with 13% of the banked population meaning CBZ had 367 000 active accounts.

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Table 4.12 Profit analysis

CBZ Annual Revenue Growth 2017 2016 2015 2014 2013

Change in Annual Revenue 6.94 % 6.58 % 4.3 % 3.97 % 3.52%

Annual Revenue (in $millions) $855.34 $799.83 $750.42 $719.48 $699.83

Source: CBZ Annual reports

4.7.5 Financial Innovation and revenue growth

Figure 4.6 Financial innovation and revenue growth of CBZ Bank, industry and sector

REVENUE GROWTH

CBZ Bank industry sector Expon. (sector) Expon. () 12% 11.61% 11.07% 10% 3.50% 2.23%

REVENUE 5 YEAR AVERAGE GROWTH(2013 - 2017) EXPECTED REVENUE GROWTH (2018 - 2019) Source Primary and secondary Data As shown in Figure 4.6 above, the use of bank innovation has boosted revenues for CBZ for the last five years. On average CBZ had 2.23% growth in revenues, in the same period that’s when the CBZ touch app was launched recording 100 000 installs from play store Financial Gazette (2018). The banking industry on its own recorded a 11.07% increase in revenue and a 11.61%increase of the whole financial sector. Estimate indicate that the Financial sector will have a decrease of 4.4% and a 1% increase in the banking sector in 2018 and 2019 respectively. However, estimates for revenue increases of CBZ Bank and the banking sector are still shaggy following turbulent economic changes.

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4.8 Which form of innovation should CBZ Bank channel its resources the most? Response Strongly Agree Indifferen Disagre Extremely Total Type of agree t e Disagree Financial Fre % Fre % Freq % Freq % Freq % Fre % Innovation q q q Product 50 60.0 20 40 ------60 100.0 Innovation .0 Process 30 30.0 20 40 15 30. - - - - 60 100.0 Innovation .0 0 Institutional 20 40.0 Innovation

Table 4.13 Preferred form of innovation Source: Primary data Table 4.13 above shows the responses of respondents on the form of innovation CBZ should funnel its resources the most. Findings reviewed that product was more favored receiving 50%, process Innovation recording 30% and Institutional innovation getting 2%. All in all, respondents had a 100% response rate indicating that bank innovation should be largely prioritized and given enough resource since it is a large variable to the Banks Profitability.

4.9 Correlation between financial innovation on financial performance of CBZ bank

Table 4.14 Correlation of financial innovation and CBZ financial performance Financial Innovation Financial Performance Financial Pearson 1 .539 Innovation Correlation Financial Pearson .539 1 Performance Correlation N 60 60 Source: Primary Data

From the findings presented on table 4.14 below, it shows there is strong positive correlation between financial innovation and financial performance of CBZ bank, as shown by correlation factor of 0.539. Indication is that profitability of CBZ is directly connected to adoption of financial innovation.

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4.10 Commercial banks and financial innovation Figure 4.7 Financial Innovation adoption by Commercial Banks in Zimbabwe.

8 7 6 7 5 6 5.5 4 5 4.3 3 3.6 3.4 percentage percentage 3.1 2 2.6 2.8 2.8 2.4 2.2 2.5 1 1.5 0 2013 2014 2015 2016 2017 years

Product Innovation Process Innovation Institutional Innovation

Source: Secondary data

Research findings as highlighted by Figure 4.7 showed an increased in the acquisition of financial innovation by commercial banks in Zimbabwe from 2013 to 2017. Product innovation had the highest increase in the study years ranging from 44% in 2013 to 70% in 2017 respectively. Process innovation had a steady increase between the three recording an increase of 23% in 2013 to38% in the year 2017. Institutional innovation has had the least increase as indicated by a 15% in 2013 and 20% increase to 35% in the year 2017.Overall, innovation has increased demand and is shown by a progressive increase since 2013.

4.10.1 Commercial Banks Financial Performance

To determine performance commercial banks in Zimbabwe, statement of comprehensive income can be used, but to compare with other commercial banks from other countries, return on asset (ROA), return on equity (ROE) and net interest margin is used. A further analysis of economic measure one can uses economic value added (EVA) and risk adjusted return on capital (RAROC). Some investors use market-based performance to evaluate performance of commercial bank and these include Credit Default Swap, price/earnings ratio (P/E), total share return (TSR), and price to book value (P/B). Amongst the four, ROA, ROE and NIM are widely used because of the availability hence are the most popular measures to measure commercial bank performance.

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Figure 4.8 ROA, ROE and NIM as profitability measures for Commercial Banks

25 22 23.3 8 7 20 16.3 6 6.3 6 15 5 8.6 4 10 62.9 percentage 2.5 3.1 2 5 1.9 1.8 1.1 0 0 2013 2014 2015 2016 2017 Year

ROA ROE NIM

Source Published Annual Incomes Figure 4.8 shows return on asset (ROA), return on equity and net interest margin from 2013 to 2017 were calculated and graphically represented. There was an increase in ROA, ROE and NIM from 2013 to 2017 and then ROA and ROE decreased to 1.1% and 8.6% respectively in 2017. However net interest margin maintained a steady increase throughout the years under review. 4.11 Benefits of financial innovation to CBZ bank The researcher, took time to answer one of the objectives looking closely on the benefits brought upon by financial innovation and various were cited towards financial performance of CBZ bank. The discoveries are presented in figure below.

Figure 4.9 Financial innovation benefits to CBZ Bank

30% 30% 30% 20% 20% 10% 10%

0% efficiency customer Reduced increased satisfaction errors customer outreach

Source Primary Data

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Mutengezanwa (2012), did a study that suggested for the government to create a legal and regulatory framework that is supportive of e-commerce. The benefits of financial innovation and e-commerce far outweigh the limitations as indicated by Figure 9 . From the respondents 30% gave indication that financial innovation adoption reduced errors (20%) and increased customer satisfaction. Improved process and unique products like CBZ touch that offers all banking facilities on your mobile is largely accredited to that. Customer outreach recorded a 10%which is slightly low. Despite the response, this shows that opening of new branches and financial intermediaries through institutional innovation by CBZ bank improved accessibility to customers reaching a wider client base. Mostly, efficiency was achieved through financial innovation recording 30%. From the interviews, clerks and branch managers mostly emphasized that the use of all forms of innovation have improved efficiency hence improving service delivery leading to more realized profits.

4.11.1 Other notable benefits New and improved ways of doing transactions Financial innovation brings in new and improved ways of doing transactions and also reduces transactional cost. Majority of urban residents use mobile banking services to do payments of prepaid electricity, airtime, and transmittal of funds to relatives in rural villages. Unemployment reduction Financial innovation has been said to bring about unemployment. Many of the work done by new machines and systems was once someone’s daily job hence the emergency of various forms of financial innovation rendered those people worthless and prone to sacking. Competition Enhances competition to participants. A gap created by innovation is very big and each firm should work tirelessly to fill it. An acquisition of the latest software or banking app by a commercial bank increase its efficiency as well as its service delivery leading to more sales and revenue. Expansion and global presents

In 2016, CBZ Bank sustained its existence in the infrastructure development and finance market. The Bank managed to launch and sell out the Victoria Falls housing project, finalize the Highlands Clusters and Westgate housing projects as well as complete development of the Intercare medical facility in the Baines area, CBZ Annual Report (2016). Globally the Bank concluded arrangements

54 for product export into the United Kingdom. The intention was to step up the infiltration in the United Kingdom and other global market with Zimbabwean population by year end 2017.

Synergies and Innovation promotion

The three main innovations that were launched in 2016, that is, CBZ Touch, the Experience Centre and the CBZ Kleva POS, as well as social media platforms, recorded incredible interest and utilization.

4.12 Challenges related to the adoption of financial innovation by CBZ bank Technology adoption costs

Despite the notable benefits provide by innovation also succumbed challenges adopting Financial Innovation. Technology is costly and adopting certain software’s and programs took a huge amount of money hence straining their budget. Reviews by the CBZ E-banking senior manager indicated that, with increased demand for electronic cards, they were compelled to buy another debit card producing machine which is estimated to be US350 000.

Skilled workforce

Technological tools require skilled workforce and personnel hence very difficult and costly to acquire one. CBZ have to do training sessions to equip every one with required skills and knowledge to operate most of the tools especially relating to Internet and mobile banking as well as Zimswitch handling.

Network failures

The move to adopt financial innovation has also been associated with the risk of network failures. Congestion or simple network upgrades can cause disruptions in network compatibilities hence delimiting the usage of large banking service like internet and mobile banking.

Breakdown of machines

Machines are a big part of financial innovations Network servers, ATM machines, POS machines, bank cameras, printers, computers, embossers among others are machines in the most commercial banks. A failure of one of these may deter the use of the other, efficiency and productivity.

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Power shortages

Financial innovation comes in various forms and variety. Some innovation might not be advantageous as they are posed to be, rather they may present serious side effects. Many commercial banks in Zimbabwe faces issues of power shortages hence reduces productivity. Power cuts have become a normal occurrence in Zimbabwe and this has negatively impacted the operation of Commercial banks especially in this digital era where most banking is done online or using and electronic device. However, to curb this uncertainty risk most banks have equipped themselves with backup generators.

Low uptake of monetary products and services

In Zimbabwe case is there is low acceptance of the few monetary products and services on the market because of the availability aspect or demand aspect limitations. Good examples are the embracement of internet banking. Looking at the time involved since the introduction of internet banking on the market, it seems there is low uptake of transactions volume wise and price of transactions.

4.13 Chapter summary This chapter obtainable and analysed the study findings from the field by using secondary data, questionnaires and interviews. Conclusively results indicated that financial innovations have a significant impact on commercial banks financial performance as measured by various profitability ratios and other variables. Research objectives where answered as well as other related study questions and findings were analyzed and presented using Excel and SPSS. From findings, it can be noted that the primary data collected was an achievement. The next chapter is going to cover conclusion and recommendation to the study.

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CHAPTER V

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter presents a recap of the study objectives, major findings, summary and conclusions for the study. Recommendations for both CBZ Commercial bank and future researchers based on literature review and findings presented.

5.1 Summary of Study

The research examined financial innovation and its impact on financial performance of commercial banks, a case study of CBZ Bank. The research objectives of the study were; to establish the effect of ATM and card usage on the financial performance of commercial banks. To determine the impact of product, process and institutional innovation on the profitability of CBZ bank. investigate the need for bank innovations in fostering competitiveness of CBZ Bank, to identify challenges faced by commercial banks in the adoption of financial innovation. The research used descriptive research design. Questionnaires and interviews were used to collect data and a sample size of 60 respondents was used obtained through stratified and purposively sampling methods. Data was analyzed using descriptive analysis.

5.2 Summary of findings

5.2.1 Financial innovation and its impact on profitability of CBZ commercial Bank Findings proved that financial innovation has a huge impact on CBZ commercial bank performance. Through the use Bank performance indicators like return on assets (ROA), return on equity (ROE), return on capital (ROC) and net interest margin (NIM), the researcher was able to ascertain the impact of Financial innovation on Financial performance of CBZ for the last five years. There was a significant increase in revenue growth and increased cashflows during the years under study and the banking sector at large.

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5.2.2 Effect of ATM and card usage on the financial performance of CBZ Bank Conclusions from the study indicated that ATM and card usage have a positive effect on financial performance of Commercial banks in Zimbabwe. Fifty percent of the respondent strongly agree the use of ATM debit card usage had an impact on commercial bank profitability. From the interview with one of the Steward bank personnel, he emphasized the easiness the ATM and debit card has brought to the financial system following the recent Zimbabwe cash shortages. Following the questionnaires responses many respondents shows that ATM and card usage brought efficiency, financial freedom, customer satisfaction and increased the rate of financial inclusion.

5.2.3 Impact of product, process and institutional innovation on the profitability of CBZ bank. Reviews of the study highlighted that three forms of financial innovation are widely adopted, the extent to which follows this sequence, product, process and institutional innovation. Product innovation through the use of ATMs, Mobile Banking, Internet banking as well as Debit card usage has contributed largely to CBZ financial performance. Following interview and questionnaire responses, product innovation obtained about 55% as the largest contributor to profitability. The use of advanced systems to automate the work and facilitate reconciliation also received a high response from respondents indicating the wider contribution of process innovation to CBZ bank financial performance. Many respondents especially managers highlighted the demand and essentiality that Zimswitch and automation has become in our turbulent economy.

5.2.4 The need for financial innovations in fostering and competitiveness of CBZ Bank Ltd Findings has shown that there is greater need for financial innovation adoption by CBZ bank for continued survival and competitiveness. Following an analysis of SMEs POS machine adoption by CBZ Bank and its counterparts Steward Bank and FBC bank, conclusions were drawn that there is substantial need for financial innovation by CBZ Bank. In an indepth analysis of CBZ profitability, the study found out that the bank was performing well and being one of the leading commercial Bank in Zimbabwe.

A wider view on its contribution to the bank’s financial performance. Institutional / Organizational framework received the lowest rating though CBZ has been putting wider effort in its adoption.

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5.2.5 Challenges faced by CBZ Bank in the adoption of financial innovation Despite the many benefits brought by financial innovation to CBZ bank also faced some challenges. From the findings main challenges faced were technology adoption costs, the need for skilled workforce, network failures, breakdown of machine, power shortages and the low uptake of monetary products and services in Zimbabwe. However, from the study CBZ bank has found mechanism to go about these shortages to ensure full-service delivery to their customers.

5.2.6 Input of financial innovations on the revenues of CBZ Bank Ltd According to research findings, revenues of CBZ bank started pivoting upwards since the adoption of various from of innovation indication a wider input of bank innovation to cashflows. The use of process innovation tools (mobile and internet banking, Zimswitch, Automation and Reconciliation) has smoothen transactions and data processing in CBZ bank leading to reduced cost and increase revenue as emphasized by the transaction cost innovative theory. Notably CBZ Touch and CBZ Kleva-POS recorded highest rating as contributors to profitability making them the cash cows of the commercial Bank.

5.3 Conclusion Conclusively, research findings deduce that financial performance of commercial banks in Zimbabwe, CBZ in particular is positively affected by the financial innovations. Various form of innovations like product, process and institutional innovation has a huge impact on bank performance as they increase cash flows, revenues and profitability. This can be measured using financial indicators like return on invest, return on equity and assets.

Financial innovation is necessary to every commercial Bank in Zimbabwe. As highlighted by findings CBZ needs financial innovation to stay in the game, to fight competition and to survive. Despite the cost association with the adoption of financial innovation, financial are still vital and more resources should be channelled towards its attainment as widely emphasized by the Technology Acceptance Model (TAM) by (Davis, 1989). There was a positive correlation between financial innovation and financial performance of CBZ bank as shown by a correlation significant level of 0.539 which is closer to 1.

The acquisition of a good financial innovation by CBZ Bank enhanced chances of improving the return on banks and shareholders. The liquidity crunch that hit Zimbabwe a decade ago has fostered a rise in the use of digital banking paving way for financial innovation to manifest hence boosting

59 commercial banks financial performance. Product, Process and Institutional innovation in that order proved to have a great impact on CBZ revenues and profitability. Findings greatly indicated positive cashflows from the past five years and respondents provided high ratings.

5.4 Recommendations Innovativeness

Banks should be more innovative to design products that can be used by the unbanked informal group. That is, commercial Banks like CBZ must move away from traditional brick-and-mortar branches to become a digitally-engaged and focused brand. CBZ bank should transform all its branches to match CBZ Kwame-Nkrumah or CBZ Wealth Management branch.

Revaluation of the nature of the job

Constant revaluation of the nature of the job is needed. Financial Innovation is being used to improve financial operations in commercial banks. The E-banking platform has widely been adopted by CBZ bank and is constantly changing. Methods and machinery used in the initial stages will not be effective at the present day hence re-training and repurchasing of updated equipment is needed.

Risk Management Financial Information System

CBZB should consider investing strong Risk Management Financial Information system that consist of adequate risk IT infrastructure and processes. Improving IT infrastructure is important for financial stability because it facilitates the provision of accurate risk information for use by bank management and improved risk data-aggregation. The measuring and management of risks is fundamentally a technological and operational activity and IT Department is the engine that drives superior risk management. Duplication of cards, wrongly embossed cards, imposts of funds, system challenges that closes cards should be outdated with advanced system that picks it before production is finalised.

Reduction of paper transactions and manual work.

The world is becoming technology sensitive and in order to be abreast the Bank has to adopt policies of reducing paper transactions. Policies and products directed at convenience and efficiency so that the client does not have to do a lot of paper work. Reduction of papers in bank operations means that the Bank can process transactions and respond to clients quickly. It will also

60 give more time to handle queries and focus more on service delivery. Filing and Achieving is outdated, the Bank should invest in new technological systems and create databases that everything is kept safe, easy to locate and timeless to process

The study recommends that banks should continue in convincing their clients to embrace the use of electronic cards as this strategy was found to be positive related with financial performance

Strategic Marketing of the Bank and its products .

Bank has ventured into marketing tools like the radio, televisions and social sites however; challenge comes when most of our clients and majority of Zimbabweans are not into local content. CBZB should engage into more marketing strategies, going on international platforms like DSTV. In addition, the Bank should consider deploying at least one marketing professional for each branch. This would mean that branches could create their own marketing strategies and have the right personnel ready to tackle the work.

5.5 Areas for further research The study only dwelled on financial innovation and circled on Financial performance of commercial banks. There is need to further look at Financial innovation in relation to financial inclusion, competitiveness, labour management, risk, quality as well as productivity. It is also recommended to further study on other factors that have on impact on financial performance like, corporate governance and management quality.

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Wong, J. (2004). Market Structure, Competition and Intermediation in the Latin American Banking Industry. Goethe University Frankfurt Working Paper. Richardson, S. (2002). A boundary theory investigation of the product manager’s role, Journal of Marketing, 26-40. ITU. Measuring Information Society. Retrieved from Harare 18/09/2017 Bankers Association of Zimbabwe .2016. Fast track E-banking adoption in Zimbabwe, Retrieved 23/10/2017 Agboola, A. (2006) Information and Communication Technology (ICT) in Banking Operations in Nigeria, An Evaluation of Recent Experiences , Published Thesis, Obafemi Awolowo University, Hernando, I., Nieto, M.J. (2007), Is the Internet delivery channel changing banks’ performancCE Boachie-Mensah, F., &Acquah, I.S.K. (2015).The effects of innovation types on the performance of small and medium-sized enterprises in the Sekondi-Takoradi metropolis. Archives of Business Research, 3(3), 77-98. Kithaka, E. 2014. The effect of mobile banking on financial performance of commercial banks in Kenya. Masters Thesis. University of Nairobi. Nairobi. Domeher D., Frempong J. M., and Appiah T. (2014). Adoption of financial innovation in the Ghanaian banking industry Chemitei, L.J. (2012). The role of product innovations in creating competitive advantage: A case of microfinance institutions in Nakuru town . Unpublished MBA project, Kabarak University, Kenya. Borg, J., and Gall, T., 1989. Educational research,an introduction,Longman,New York Kotler, P and Keller, K. (2009). Marketing Management .13th Ed. Pearson International Edition. Prentice Hall. UK Kothari, T (2011) Research methods in education, Boston, Allyn and Bacon Publishers Zhou, L. and Wang, P. (2010) Mobile Banking Adoption, Journal Of Financial Analysis Lerner, J. (2006). The new financial thing: The origins of financial innovations. Journal of Financial Economics , 79, 223-255. Lyons, R. K, J. A Chatman & C. K. J (2007). Innovation in financial services: Corporate culture and investment banking. California Management Review, 50(1), 174–191.

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Mansury, M. A & Love J. H (2008). Innovation, productivity and growth in US business services: A firm-level analysis. Technovation , 28(1/2), 52–62. Mwangi J. (2011). The new Silicon Valley of financial innovation . Equity Bank, Nairobi. Mwangi M.K. (2007). Factors Influencing Financial Innovation in Kenya’s Securities Market: A Study of Firms Listed at the NSE. Unpublished Master of Business Administration Project, University of Nairobi. Nigel, J., Penalver, A., and Nicholas, V., 2008. Financial innovation: What have we learnt? Reserve Bank of Australia Publication. Noyer, C., 2007. Financial innovation, monetary policy and financial stability. Spring Conference, Banque de France. RBZ (2014). Monetary Policy Statement. Harare, Reserve Bank of Zimbabwe. RBZ (2015). Monetary Policy Statement. Harare, Reserve Bank of Zimbabwe. CBZ Holdings Annual Report 2013

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Appendix I

Questionnaire

Bindura University of Science Education

Faculty of Commerce

Dear Sir/Madam

Good day, I am a 4th year undergraduate student at Bindura University of Science Education doing a degree in Banking and Finance. In partial fulfillment of the programme, it is required for every student to conduct research project of his/her own choice. My research topic is as follows;

AN EVALUATION OF FINANCIAL INNOVATION AND ITS IMPACT ON FINANCIAL PERFOMANCE OF COMMERCIAL BANKS. A CASE STUDY OF CBZ BANK

I am kindly requesting for your aid through the completion of the questionnaire complementary to this letter as per your understanding. Responses obtained will be held confidential and will only be used for academic purposes.

Your co-operation is highly appreciated.

Yours sincerely

Alen keto

Cell: 0774813494

Email: [email protected]

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Please tick appropriate box a) Background Information

Department ______(optional)

1. What position do you hold in CBZ Bank Zimbabwe Ltd?

Clerk Officers Branch Manager senior manager Departmental manager

2. How many years have you worked for the bank?

1-5years 6-10 years 10 years and above

b) Financial Innovation and Financial performance 3. Are bank innovations necessary? Yes No 4. Can we say that CBZ Touch brought efficiency in transacting and satisfaction to customers? Yes No 5. Do you think the benefits brought by financial Innovation outweigh the challenges? Yes No 6. Which of these institutional innovations have contributed mostly to CBZ bank revenues? a. new type of intermediaries b. new service structures c. changes in Business structure 7. Which of the following financial performance indicators are you familiar with? a. Return on Equity b. Return on Asset c. Return on capital employed d. Net profit Margin 8. In an economy like that of Zimbabwe which form of innovation should CBZ Bank channel its resources the most? a Product Innovation b Process c Institutional Innovation 9. Which of the following challenges has largely affected the adoption of bank innovations by commercial banks?

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a. Technology adoption costs b. Skilled workforce c. network failures d. breakdown of machine e. power shortages f. low uptake of monetary products and services c) Ratings

Answer using this scale for your response. (1 - strongly disagree, 2-disagree, 3-indifferent, 4- agree, 5-strongly agree)

10. What is the most adopted form of innovation by CBZ commercial bank?

Form of Financial Innovation 1 2 3 4 5 Product Innovation Process Innovation Institutional Innovation

11. What is the most frequently and adaptable form of product innovation?

Form of Financial Innovation 1 2 3 4 5 CBZ POS machines ATM Debit cards CBZ Touch Mobile App

12. Impact of process innovation on the revenue of CBZ Bank

Form of Financial Innovation 1 2 3 4 5 Mobile banking Internet banking Zimswitch Automation Reconciliation

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18. 1 2 3 4 5 ATM and Debit card usage have largely impacted commercial banks financial performance. Can we ascertain financial innovation adoption by CBZ for the past 5 years to financial benefits of the bank Financial innovation has contributed to profitability commercial banks in Zimbabwe? Do innovation increase the survival and competitiveness of CBZ Bank? Can you recommend continuous adoption of latest financial innovations by CBZ bank Impact of institutional innovation on the revenue of CBZ Bank

Section C; Open ended questions

1. What are the challenges faced by CBZ bank in adopting financial innovations?

………………………………………………………………………………………………… …………………………………………………………………………………………………

2. What recommendation can you give to better innovation adoption by CBZ bank? ………………………………………………………………………………………………… …………………………………………………………………………………………………. 3. Did the adoption of various forms of financial innovation by CBZ Bank improve efficiency and clientele base?...... Thank you for your cooperation

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APPENDIX II

Interview Guide Date:

Duration

Background Information

Position in the Bank…………………………………………………………………….

Period of services in the current position ……………………………………………

I going to be asking you questions on commercial banks and CBZ Bank financial innovation adoption, in relation to financial performance.

1. Are bank innovations necessary? 2. How do you see CBZ Banks performance for the past five years to current? 3. What is the most adopted form of innovation by CBZ commercial bank between product, process and institutional innovation? 4. Do bank innovations influence survival and competitiveness of CBZ Bank Ltd. 5. Has ATM and Debit card usage impacted commercial banks financial performance? 6. Which financial performance indicators are you familiar with? 7. Can we say that CBZ Touch brought efficiency in transacting and satisfaction to customers? 8. Which form of innovation should CBZ Bank exhaust its resources on? 9. What are the challenges that has largely affected CBZ bank in adopting bank innovations? 10. What are the advantages and shortcomings posed by financial innovation to CBZ Bank Ltd?

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