Banks can stay relevant despite rising fintechs

Whatever way you look at it, traditional banks with a major presence across Kenya and beyond have faced more than their fair share of challenges lately, with a few banks being taken over forcing them to close shop over the last few years, and others having to send hundreds of staff home as part of restructuring activities which involve closure of branches and a shift to mobile and digital banking.

Accountancy professionals working alongside CFOs, FDs and management accountants working across the entire finance function have been tasked with the key objective of recovering momentum after major issues including reputational challenges; accounting, tax and regulatory change; not to mention business restructures driven by both external and internal factors.

Now they are being confronted with a different challenge. Almost daily, a new fintech seems to be emerging, ranging from outfits like Jambopay (the local payments service provider) and of course M-Pesa, the most ubiquitous payments application in Kenya. These are examples of new fintech players that are offering innovative solutions to age old problems in a compelling, and, importantly, digital way.

The new entrants are appearing across the financial services landscape, jostling to secure a slice of the pie in capital markets and lending, retail banking and payments, asset management and insurance.

Many of these fintechs are supported by an already impressive group of financial backers and capital. The marketing is sleek, the brands eye-catching and — for many potential customers — the image associated with these new players highly desirable. Millennials and Generation Z, demographics of change-makers and entrepreneurs, who are generally as liberal as they are educated, want to put their money where their values are.

Those values have been shaped by scepticism of the establishment, a lack of trust in large institutions, and an expectation that transferring money or making a payment digitally should be as easy as ordering a car online at the click of a button.

The new entrants are impacting traditional financial services business and operating models, not only putting pressure on incumbents’ strategy but also on the finance function to determine the accounting implications of such change. Furthermore, practice accountants must also advise their clients accordingly as they navigate these tricky waters.

It should also not be forgotten that the number crunchers at the fintechs are also facing various challenges, often being responsible for shepherding their organisations through periods of major growth, investment and internationalisation to capitalise on potential windfalls in this new financial services ecosystem.

Against this backdrop, banks, their management accountant practitioners and even those in practice advising clients would be forgiven for feeling a little rattled. The banks themselves are arguably weighed down by old technology that doesn’t always provide the seamless handheld, digital experience that customers have come to expect. They also operate in a heavily regulated and capital-intensive environment and they may also be burdened by historic and reputational factors.

But while this is certainly an Achilles heel, it would be wrong to draw the conclusion that these factors will fell them completely. Pretty much all of the big banks we know in Kenya today have a rich history that dates back decades. They have gravitas, scale and experience that the vast majority of fintechs may find difficult to emulate - particularly in the short term. So, while the way they operate may indeed be impacted by the bright young things of the sector, it would be wrong to claim their existence and that of their employees is in any way under real threat.

We frequently read and hear that the financial services industry and by extension the accountants employed there are enduring an age of disruption, driven by technological innovation. Responding positively to the challenges and opportunities of disruption will be found where the enablers of disruption collide and collaborate - incumbents need fintechs for innovation while FinTechs need incumbents for scale.

Fintechs, in most cases, have an idea, an image and the proprietary technology to make a mark and even save costs, but they don’t always have the scale and broader corporate infrastructure to play big in this complex ecosystem. As a result, many have already teamed up with more established names for their mutual benefit.

It’s also worth remembering that many of the services offered by the new players are not too far removed from those we’ve been using for years. They are just delivered in a cheaper and more seamless way, consistent with a more dynamic, social and tech enabled population. As a result, we have seen a number of traditional banks reconsidering their digital banking operations and footprint.

So no, we shouldn’t be bracing for the downfall of the big banks. Accountants, and their advisers, at brick-and-mortar physical banks will need to stay close to change management programmes, which continue to drive store and ATM closures, and tech change, and flex their skillsets to tailor for new business and client demand. It will be no different in this area.

Finance professionals should prepare for a future where incumbents work with challengers so that customers can benefit from the smoothest, digital experience and service, safe in the knowledge that their bank has centuries of experience to draw on.

The writer is Institute of Chartered Accountants in England and Wales (ICAEW)’s Regional Director for the Middle East, Africa and South Asia.