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Abstract: Product digital innovations are key drivers for differentiation, revenue growth, and competitiveness within the banking sector. In Kenyan banking sector, since 2013, strategic advancements have led to the adoption of digital platforms for service delivery, significantly affecting the industry landscape. The study aimed to investigate the effect of digital product innovations on financial outcomes and the moderating role of government policies in this relationship guided by Evolutionary Theory of Economic Change. Using a descriptive study design, data was collected from 315 employees across 39 commercial banks, employing structured questionnaires for primary data and industry reports for secondary data. Statistical analysis, including regression models, was conducted to test the hypothesis that digital product innovations have no significant impact on financial performance. Key findings indicate that product innovations such as mobile banking solutions and e-wallets have led to improved customer satisfaction and market relevance. However, challenges such as leadership and organizational culture, financial constraints, and regulatory compliance were identified as barriers to effective product development. The study concluded that while there is a statistically significant correlation between digital product innovations and financial performance, the variability explained by innovations on return on equity (ROE) is moderate (R² = 42.6%). The research highlights the importance of continuous innovation and strategic alignment to enhance performance. Banks that prioritize customer-centric approaches and agile development processes are more successful in driving digital product uptake. Further, commercial banks can invest in Greentech products, enhance digital literacy on digital wallets and personalized finance management tools, adopt optimal resource allocation and invest in innovation labs with elaborate digital system to increase product survival rates and cuts on costs. It also emphasized the role of government policies as a significant factor influencing the financial outcomes of banks, suggesting that understanding and leveraging these policies can lead to improved profitability. The study recommends that bank managers foster a culture of innovation, address product differentiation strategies, and optimize resources to overcome challenges in product innovation. By doing so, commercial banks can harness the potential of digital innovations to improve financial performance and maintain a competitive edge in the dynamic banking environment of Kenya. |
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