Financial Innovations and Sustainable Competitive Advantage of Commercial Banks in Kenya

The rapid evolution of financial technology has fundamentally reshaped the competitive dynamics of commercial banking in Kenya. Despite sustained sector-wide investment in digital transformation, a substantial proportion of licensed banks continue to struggle to convert technological adoption into durable competitive advantage. This study established how financial innovations relate to the sustainable competitive advantage of commercial banks in Kenya and assessed the moderating effect of corporate governance on that relationship. The study was anchored on Dynamic Capability Theory and the Resource-Based View. A descriptive correlational research design was adopted under the positivism research paradigm. The target population comprised 195 senior officials drawn from all 38 licensed commercial banks in Kenya, from which 175 usable questionnaires were returned, representing an 89.74% response rate. Data were analysed using SPSS version 29 through descriptive statistics, Pearson product-moment correlation and hierarchical moderated regression. The study found a strong, positive and statistically significant relationship between financial innovations and sustainable competitive advantage (r = .680, p < .001; R² = .463; β = .680; B = 0.703; p < .001). Corporate governance significantly moderated this relationship, raising the total explained variance from 46.3% to 77.3% (ΔR² = .101; ΔF(1, 171) = 76.08; p < .001). It is recommended that commercial banks in Kenya intensify investment in digital banking infrastructure, artificial intelligence, biometric security and data analytics while simultaneously strengthening board-level governance capacity, since the competitive returns to financial innovation are realised most fully where governance oversight is strong.