Why Kenyan banks face ‘Uber’ moment

A screen shot of the NIC bank mobile banking application on October 16, 2013. SALATON NJAU (NAIROBI)

What you need to know:

  • Banks are increasingly reporting a decline in transactions at the branches as more customers opt for their mobile phones to conduct banking at the comfort of their homes or work places.
  • And while banking is witnessing a remarkable shift thanks to technology, analysts are not completely sold to the idea that bank branches in Kenya are at the risk of disappearing.

The rise of online and mobile banking in Kenya has forced Kenyan lenders to go back to the drawing board as analysts predict that traditional brick-and-mortar branches could soon disappear.

Banks are increasingly reporting a decline in transactions at the branches as more customers opt for their mobile phones to conduct banking at the comfort of their homes or work places.

Kenyans are now likely to pay their utility bills or even withdraw their monthly salaries via the phone, avoiding the ATMs and queues at the bank. Faced with this new reality, lenders are now compelled to review the way they do their business.

And just as the disruptive taxi service Uber has challenged traditional operators in Kenya and other parts of the world, increasing use of mobile banking services is forcing lenders to innovate.

Equity Group Chief Executive, James Mwangi said last week that the lender’s mobile banking transactions increased by about 1,000 per cent to 151 million in 2015, while its agency banking transactions went up by 35 per cent to 51.3 million transactions during the period. These are massive figures by any standards.

Virtual battle

“The battle is no longer physical. The battle is now virtual. We are now starting to retire the brick and mortar of the bank to concentrate on digital,” Mr Mwangi said when the lender released its 2015 full year profits.

Central Bank of Kenya Governor Patrick Njoroge has also called on banks to innovate or suffer the consequences of failing to read signs of the time.
Mr Mwangi said more customers transacted on the lender’s Equitel mobile platform unveiled in August last year than those who conducted their businesses in the bank’s branches.

“I.9 million customers applied loans from phones and a paltry 533,000 applied physically in 2015,” Mr Mwangi said.
In 2015 the lender’s ATM transactions reduced by 6 per cent during the period to 30.4 million transactions.

A similar phenomenon has also been reported by KCB in the last year. The lender’s chief executive Joshua Oigara says that mobile and agency banking is driving most of the transaction volumes with about 70 per cent of transactions driven by different mobile channels. “If you talk about ten transactions we have seven of the transactions in there comprised mobile and agency banking,” Mr Oigara said recently when he announced KCB’s 2015 full year financial results.

New trend

Mr Oigara said KCB Group and Safaricom’s mobile banking product (KCB MPESA) launched in March 2015 issued loans worth Sh7 billion in 10 months.

He added that 98 per cent of the loans are repaid, with 50 per cent of the borrowers coming back to borrow more.

“The trend we have seen is that most customers borrow in the morning and return the money in the evening same day despite the loans being offered with a repayment period ranging from one month to six months,” Mr Oigara said.

The bank’s mobile credit facilities, which range from Sh50 to Sh1 million, are sent instantly to customers’ mobile phones enhancing convenience for users. And in the wake of the recent trends analysts now project that smartphones could in a few years replace brick-and-mortar banks.

Remarkable shift
And while banking is witnessing a remarkable shift thanks to technology, analysts are not completely sold to the idea that bank branches in Kenya are at the risk of disappearing.

“I think there will always be demand for bank branches but I predict this will morph into niche’ branches. High-end bank branches and maybe much smaller Kiosk-type models. The age of bank branches is not over but the new normal is exhibiting explosive growth,” says financial analyst Ali Khan Satchu.

He adds that Kenyan lenders recognize this change and are starting to invest more in mobile efforts.

“You can see from CBA, from KCB and from Equity that banks are already embracing the mobile model. There is an early mover advantage and these Banks appear to be in the lead,” Mr Khan explains.

Mr Satchu’s sentiments are backed by Sterling Capital analyst John Kirimi. “Bank branches will have a role in banking albeit different from the the ones they play currently. They may be reduced but they will not disappear completely,” he said.

Indeed banks have in the last few years rushed to partner with mobile including Safaricom, Airtel and Orange operators for their mobile money services.

In March last year, Commercial Bank of Africa (CBA) signed up its tenth million customer, making it one Kenya’s biggest bank by customer numbers. The milestone was boosted by Safaricom’s mobile banking savings and loans account, M-Shwari. M-Shwari offers customers a platform to save money on their mobile phones and later borrow loans that are repayable within a month.

And last month, Barclays launched a mobile card payment solution becoming the latest firm to push into the space for proximity payments.

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