Effect of Operational Risk on Third-party Payment Processing among Retailers in Nairobi County, Kenya

Abstract

The study addresses the effect of operational risk on third-party payment processing among retailers in Nairobi County, Kenya. Methodically, the study was guided by the positivism research philosophy and applied a descriptive cross-sectional research design targeting 226 retailers under the registered payment service providers regulated by the Central Bank of Kenya. The sample size of 144 heads of finance and compliance, and risk managers/heads of payments was drawn using a stratified sampling technique. Primary data was collected through a self-administered questionnaire, which was designed based on the research objectives. Secondary data regarding firm size (total assets) was gathered from the financial statements. Both descriptive and inferential analyses were employed for analysis. The descriptive statistics revealed that errors had the highest average mean of 4.07, followed by internal control systems with an average mean of 3.98, while the stability of payment systems had an average mean of 3.86. Regression analysis results showed that operational risk positively and statistically influences third-party payment processing among retailers in Nairobi County, Kenya (r² = .184, β =.187, t=5.186, p<.05); hence, the null hypothesis was rejected. The study concludes that operational risk influences third-party processing among retailers in Nairobi County, Kenya. The study therefore recommends that management of the retailers in Nairobi County should invest in training to facilitate their capacity to improve their internal controls and personal skills, which may lead to a decrease in operational risk and performance failure, thus increasing their third-party payment processing.