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ADOPTION OF FINANCIAL TECHNOLOGIES AND COMPETITIVENESS OF…..ORGANIZATIONS IN UGANDA: ACASE STUDY OF BRAC.
CHAPTER ONE
INTRODUCTION
This chapter presents the background of the study, the problem statement, purpose, objectives of the study, research questions, study scope, justification of the study, significance, hypotheses, conceptual framework, as well as operational definition of key terms and concepts.
The section presents, historical background, theoretical, contextual background, conceptual background.
1.1.1 Historical Background
Financial technology (fintech), dates back centuries, with the earliest forms of banking and financial transactions taking place in ancient civilizations (Ayubjon o’gli, 2022), Financial technology, commonly known as fintech, is a term used to describe the application of technology to financial services. fintech dates back to the 1950s, when the first credit card was introduced in the United States (Davradakis & Santos, 2019) However, the term “fintech” itself is a relatively new concept, only gaining popularity in the early 21st century. In the 1960s and 1970s, the development of mainframe computers paved the way for the automation of financial processes, including trading, accounting, and payment processing (Wang et al., 2021). The introduction of automated teller machines (ATMs) in the 1980s further revolutionized the financial services industry by allowing customers to withdraw cash and conduct basic transactions without visiting a physical branch (Bomer, 2020).
The advent of the internet in the 1990s brought about significant changes in the way financial services were delivered (Momaya et al., 2020) . Online banking, electronic payment systems, and brokerage services became more widely available. In 1995, the first online bank, Security First Network Bank, was launched in the United States. The 2000s saw the emergence of new fintech players, such as PayPal, which provided a platform for online payments, and peer-to-peer lending platforms, such as Prosper and LendingClub. The growth of mobile technology and smartphones in the 2010s further accelerated the development of fintech, with mobile banking and payment apps becoming increasingly popular (Alzaidi, 2018; Ghurair, 2018).
Financial technology has developed over time and is now available in a variety of formats. For example, electronic payment systems, or EPS, which have a lengthy and diverse history spanning many centuries, are now available. The development of telegraphic transfers in the middle of the 19th century made it possible to send money electronically over large distances. Credit cards, Around 1950s, When the first credit cards were released, consumers could make purchases without using cash, Automated teller machines (ATMs) were first introduced in the 1960s, allowing users to access their accounts and withdraw cash outside of regular banking hours. Electronic funds transfer (EFT) systems were established in the 1970s, enabling businesses to instantly move payments between accounts. Online payment systems: In the 1990s, services like PayPal and Google Checkout were launched, enabling users to send safe payments online. Payments through Mobile Devices (Abad-Segura et al., 2020).
Adoption of smartphones in the 2000s, mobile payment systems such as Apple Pay and Google Wallet were introduced, allowing customers to make payments using their mobile devices and currently Cryptocurrencies which were introduced in 2009, the introduction of Bitcoin, a decentralized digital currency that uses blockchain technology, sparked a revolution in the world of electronic payments (Hua, Huang, & Zheng, 2019).
According to Chatchai and Ho-don Yan (2019), as the digital era has developed, technology has continued to play a crucial role in the financial sector. Financial institutions are anticipated to merge with technology in order to meet their clients’ expectations as a result of the development of the digital economy, which unites the entire world through the usage of systems (Sangwan, Prakash, & Singh, 2020).
According to Cham, (2018), By the 21st century, sophisticated business models had developed as a result of FinTech, as financial institutions could now provide a variety of products and services through digital channels, lending, mobile wallets, payment applications and online banking. This is expected to increase the adoption of FinTech globally by 52% on average while the Fintech transaction are projected to increase to 9.82 USD trillion in 2023 from 5.49 USD trillion in 2019 (PWC report, 2019). According to Chatchai and Ho-don Yan (2019), as the digital era has developed, technology has continued to play a crucial role in the financial sector. Financial institutions are anticipated to merge with technology in order to meet their clients’ expectations as a result of the development of the digital economy, which unites the entire world through the usage of systems (Sangwan, Prakash, & Singh, 2020).
The first credit cards were introduced, allowing customers to make purchases without cash, ATM Networks: In the 1960s, automated teller machines (ATMs) were introduced, allowing customers to access their accounts and withdraw cash outside of banking hours., Electronic Funds Transfer: In the 1970s, electronic funds transfer (EFT) systems were introduced, allowing businesses to transfer funds electronically between accounts, Online Payment Systems: In the 1990s, online payment systems such as PayPal and Google Checkout were introduced, allowing customers to make secure online payments, Mobile Payments, (Abad-Segura, et al., 2020), With the widespread
Financial services and banking can adopt and evolve continuously using internet-based digital technologies to remain stakeholder-focused and competitive. The use of Internet based digital technologies in the financial services industry refers to FinTech, which results in new business models and creating new services. Digital cash, digital currency, digital payments, digital invoicing, cryptocurrency, digital mortgage, digital remittance, digital investment, digital leasing, cash management, digital advising, digital factoring, digital insurance, crowdfunding, digital lending are some of the examples of FinTech services in the banking industry (Glavina et al., 2020).
Organizational competitiveness is influenced by a variety of factors, including an organization’s strategy, structure, culture, resources, and capabilities. A competitive organization is able to differentiate itself from its competitors by offering unique products or services, superior quality, better customer service, or lower prices (Zainal, Yousuf, & Salloum, 2020).
1.1.2 Theoretical Background
The study will be guided by the Diffusion of Innovation theory is a social science theory that seeks to explain how new ideas, products, and technologies are adopted and spread through society. Developed by Everett Rogers in 1962, the theory identifies five stages in the adoption process: awareness, interest, evaluation, trial, and adoption. According to the theory, the adoption process is influenced by several factors, including the characteristics of the innovation itself, the communication channels used to promote the innovation, the social system in which the innovation is being introduced, and the individual characteristics of the adopter.
The five categories of adopters identified in the theory are; Innovators: These are the first individuals to adopt an innovation. They are adventurous and willing to take risks, Early adopters: These individuals are opinion leaders and are respected by their peers. They adopt new ideas early in the process, Early majority: This group is more deliberate in their decision-making process and adopts innovations after they have been tried and tested by others, Late majority: This group adopts innovations only after they have become mainstream and are widely accepted by society. Laggards: These individuals are the last to adopt innovations and may resist change. The theory has been widely applied in various fields, including marketing, healthcare, and technology. It has been used to predict the adoption and diffusion of new products, technologies, and services, and to develop strategies for promoting their adoption. Overall, the Diffusion of Innovation theory provides a framework for understanding how new ideas, products, and technologies spread through society and how to effectively promote their adoption.
According to Diffusion of Innovation Theory by (Rogers in 1962), diffusion is governed by four elements including the innovation itself, communication channels, time and social systems. The four elements explain the process of change as determined by employees and the whole organization. Diffusion assumes that the propensity to adopt an innovation is primarily a function of the availability of information. It also assumes that in the dissemination of information particularly at the local scale, personal contacts are of much greater significance than the mass media (Deligiannaki& Ali, 2011).
Diffusion of innovations theory is often simplified to concentrate solely on a product or innovation. Little attention has been paid on the complex cultural, economic, technology and other factors that determine organizational performance (Green et al., 2009).
1.1.3 Conceptual background
Organizational competitiveness refers to an organization’s ability to maintain or increase its market position, profitability, and sustainability in the face of competition. It is a measure of how well an organization is able to satisfy the needs and preferences of its customers while simultaneously achieving its goals and objectives (Almahirah, 2020).
The term financial technology refers to a variety of services supported by various financial technologies for various businesses, with the main goal of raising the caliber of financial products and services supported by Information Technology (IT) solutions. Fintech is made possible by the creation of cutting-edge technologies, the most significant of which are those that may reveal secret information from multiple sources, effect security, and facilitate simple client communication (Hasan, Yajuan, & Mahmud, 2020).
FinTech adoption is making use of the availability of communication, making financial transactions easy and secure, the ubiquity of the internet, and the automated processing of information as well as transactions in the financial industry (Davradakis & Santos, 2019).
Financial technology, commonly known as fintech, refers to the use of technology to improve and automate financial services. Fintech includes a wide range of applications, from online banking and mobile payments to blockchain technology and cryptocurrencies. The goal of fintech is to provide faster, more efficient, and more convenient financial services to consumers and businesses. Fintech is an interdisciplinary field that combines finance, technology, computer science, and innovation to create new financial products and services that are more accessible, affordable, and user-friendly (Phan et al., 2020).
Technology refers to the application of scientific knowledge and tools for practical purposes. It involves the use of tools, machines, and techniques to create, modify, and improve products, processes, and systems. Technology encompasses a wide range of fields, including computer science, engineering, biotechnology, and telecommunications. It has transformed virtually every aspect of human life, from communication and transportation to medicine and entertainment. Technology has enabled us to achieve feats that were once thought impossible, and it continues to evolve and shape the world around us in profound ways (Hidayat et al., 2020).
1.1.4 Contextual Background
Financial technology, commonly known as fintech, has been rapidly growing in Africa in recent years. Fintech companies in Africa are leveraging digital technology to provide financial services to individuals and businesses that are underserved or excluded by traditional banking systems. Here are some notable trends and developments in fintech in Africa, Mobile Money: Mobile money has been a game changer in Africa, allowing people to transfer money, pay bills, and make purchases using their mobile phones. Mobile money services such as M-Pesa in Kenya, MTN Mobile Money in Ghana, and EcoCash in Zimbabwe have become very popular and have helped to increase financial inclusion in the continent, Digital Banking; Digital banks are also emerging in Africa, offering banking services entirely through digital channels. Examples of digital banks in Africa include Kuda Bank in Nigeria and TymeBank in South Africa. Payment Solutions: Payment solutions such as Flutterwave, Paystack, and Paga have been developed in Africa to facilitate online payments and e-commerce. These platforms allow businesses to accept payments from customers across different channels and are also helping to drive e-commerce growth in Africa, Investment Platforms: Investment platforms such as FarmCrowdy and PiggyVest in Nigeria and EasyEquities in South Africa are making it easier for people to invest in agriculture, stocks, and other assets and Blockchain: Blockchain technology is also being explored in Africa, with projects such as Bitland in Ghana and SureRemit in Nigeria using blockchain to provide secure and transparent land registration and remittance services.
1.2 Statement of the problem
Financial technology (fintech) has disrupted the traditional financial industry by providing innovative solutions and products that have made financial services more accessible, efficient, and cost-effective. As a result, organizations that fail to adopt fintech solutions risk losing their competitive edge, as their customers increasingly demand faster, more personalized, and convenient financial services. financial technology on organizational competitiveness, therefore, is how to integrate fintech solutions effectively to gain a competitive advantage, reduce costs, increase revenues, improve customer experience, and streamline business operations. This involves addressing challenges such as regulatory compliance, data privacy, cybersecurity, talent acquisition, and cultural resistance to change. Organizations must also keep up with the latest fintech trends and innovations, such as artificial intelligence, block chain, digital payments, and open banking, to remain relevant and competitive in the market. Failure to leverage these technologies can lead to loss of market share, decreased profitability, and decreased customer loyalty.
In 2021, amount charged for impairment on loans was USD 430,234 compared to USD 4,952,582 in 2020. The decline in impairment on loans was primarily due to improvement in portfolio quality (Portfolio at Risk (PAR>30) is 13% this year against 20% in 2020. The company followed most stringent provisioning policy to be inline with Uganda Central Bank guidelines for regulated tier-II entity, In 2021, the company’s total assets decreased by 9% to USD 64,682,784 compared to the previous year’s total assets of USD 71,038,940 and the company holds a key position in the market. Loans and advances to customers decreased by 3% and is now 63% of total assets. In 2021, the company’s Savings deposits reported 32% growth, amounting to USD 18,530,074 from USD 14,053,661 in 2020. Net equity increase by 35% to USD 14,350,305 from USD 10,631,388 in 2020. Despite various investments in BRAC the company faces challenges in in areas of profitability, Growth specifically in areas of the number of active clients, High portfolio at risk and low customer satisfaction.
1.3 General objective of the study
To Investigate the influence of adoption of financial technology on organizational competitiveness.
1.4 specific objectives of the study
- To examine the influence of systems software on organizational competitiveness.
- To investigate the online payment systems on organizational competitiveness
- To investigate influence Employee technological knowledge and skills on organizational competitiveness
1.5 Research Questions
- What is the influence of systems software on organizational competitiveness?
- What is the influence of online payment systems on organizational competitiveness?
- To what extend does Employee technological knowledge and skills influence organizational competitiveness?
The content scope of the study will concentrate on; the influence of systems software on organizational competitiveness, the online payment systems on organizational competitiveness and the influence of Employee technological knowledge and skills on organizational competitiveness.
1.6.2 The geographical scope
The study will be carried out from BRAC Head office offices in Kampala.
1.6.3 Time scope
The period of data to be considered from will be from 2018 to 2023.
1.7 Operational definition of key terms
Customer satisfaction: This refers to the ability of an organization to serve the customer the right product, of the right quality, at the right price, in the right time.
Growth: This refers to the increase in an organization’s revenue as compared to expenditure and other fixed costs.
Financial technology
Financial technology, commonly referred to as “fintech,” is the use of technology to improve and automate financial services. Fintech companies aim to provide better, more efficient, and more convenient financial services than traditional financial institutions such as banks and insurance companies. Fintech services range from mobile banking and investment apps to blockchain-based cryptocurrencies and peer-to-peer lending platforms. Fintech has the potential to democratize access to financial services, reduce costs, and increase the speed and efficiency of financial transactions (Hwihanus, Wijaya, & Nartasari, 2022).
Organizational competitiveness
Organizational competitiveness refers to an organization’s ability to maintain or improve its market position and profitability relative to its competitors (Sołoducho-Pelc, & Sulich, 2020). This includes a range of factors such as product quality, innovation, customer service, marketing, supply chain management, and cost efficiency. A competitive organization is able to respond quickly to changes in the market, adapt to new technologies, and develop strategies that differentiate it from its competitors. Organizational competitiveness is important because it can lead to increased market share, higher revenue, and improved financial performance.
1.8 Conceptual Background
Financial Technology organizational competitiveness
Moderating variables
Figure 1: conceptual framework
According to the figure illustration above, financial technology is the independent variable
The study will provide future scholars with literature on mobile payments
The study will also enable the policy makers to make informed policy decision regarding financial technology.
The study will also enable future academicians to have enough knowledge regarding the growth of small and medium enterprises
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