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How technology is transforming Kenya’s banking

A  Co-op Bank banking hall: The lender has embarked on a service transformation to achieve a staff ratio of 70:30 for back and front office. PHOTO | FILE
A Co-op Bank banking hall. PHOTO | FILE 

The adoption of alternative banking channels by lenders in the past five years is bringing to an end days when interaction with your bank meant two hours in a queue before facing off with a hapless teller.

The average customer is now likely to bank daily without ever setting foot inside a banking hall, utilising instead new channels such as agents, mobile money and online banking.

The Central Bank of Kenya (CBK) banking sector report for 2015 shows the effects of the new way of banking on the sector, customers and bank staff as well as creating new jobs.

The number of agents, for instance, has quadrupled since 2011 to more than 40,000. They carry out basic banking functions such as processing deposits and withdrawals, payment of bills, fund transfers, account and loan application form issuance and lately collection of debit and credit cards.

Banks have invested in upgrades of their ICT systems to enable them handle a wider variety of customer service functions — in a way almost equivalent to opening new virtual branches.

“Robust ICT platforms have enabled banks to roll out agency banking services where customers are able to carry out banking services such as deposits and withdrawals from a third party contracted by the bank. Such transactions are seamlessly posted into customers’ accounts on a real time basis.” said CBK in the annual banking sector report released last week.

Migrate from banking halls

Co-operative and Equity are among lenders encouraging their customers to migrate from banking halls to agency services and mobile banking. Equity’s has set up its own mobile banking service dubbed Equitel, while Cooperative from last year started stationing agents inside its branches to familiarise customers with the agents and eventually woo them to this banking channel.

These investments and initiatives serve to keep a check on operating costs for the sector.

KCB, the region’s largest bank, announced its half year results last week showing a 14 per cent rise in net profit to Sh10.5 billion, with its operating expenses only growing by 1.7 per cent to Sh17.8 billion even as it maintains assets of Sh560 billion.

The bank reported that 70 per cent of its total transactions were handled through the non-branch channels in the six months to June, compared to 61 per cent the previous year.

Its mobile money platform KCB M-Pesa now serves 6.5 million customers, disbursing loans worth Sh11.3 billion since it was launched in March 2015.
“We believe the future of banking is in digital. We are reimagining digital financial services to complement the traditional brick and mortar model that was in yesteryears the hallmark of banking,” said KCB Group CEO Joshua Oigara.

Commercial Bank of Africa, which runs M-Shwari in partnership with Safaricom, reports in its 2015 annual report that the platform had 12.6 million customers by last December, disbursing loans worth Sh40 billion.

On the other hand, the increased use of technology has meant banks are hiring fewer people, although it has been argued that employment has also been created by taking on more agents.

Last year, bank employee numbers fell for the first time in 14 years, mainly clerical and secretarial staff whose roles are being taken over by agents and computerisation.

In comparison, one employee served an equivalent of 972 customers last year up from 770 in 2014. The sector as a whole shed 711 jobs, the bulk of which were from Equity, Cooperative, Standard Chartered and Barclays Kenya.

For the lenders themselves, analysts have warned that the wide shift to non-branch banking carries a risk of lower transactional income, given that these services are cheaper compared to banking hall fees and competition will drive them further down.

“The fee and commission income of other banks will also come under pressure as the roll-out of mobile banking continues, increasing the level of transparency (and thus competition) within the sector which will negatively impact the average revenue per transaction,” said analysts at UK based investment bank Exotix partners in a June report on Kenyan banks.

cmwaniki@ke.nationmedia.com

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