Banks in comfort zone will be outfoxed

Safaricom #ticker:SCOM released its Sustainable Business Report 2021 last week and it showcases many things. But I wish to dwell on one aspect the report highlights — that the Fuliza product has a value disbursement of Sh351 billion.

At the onset, Fuliza was designed to be an overdraft facility for the 28.31 million M-Pesa customers.

So Fuliza providing overdraft loans almost the same size as the gross loans of registered saccos in Kenya, which was Sh474.7 billion in 2020, says a lot about the product. This is without factoring in the M-Shwari loan disbursement.

The Fuliza anecdote brings me to what I wish to talk about. So, last week a friend was telling me how he contacted his bank for an overdraft facility and how the manner the bank handled his request took him by surprise.

In addition to being asked to fill a form requesting for the overdraft, the bank also asked for his payslip as a cover for the overdraft.

Interestingly, his salary comes through that same account he is asking for an overdraft facility. So in short, the bank had all that information they asked to risk-profile him but were completely unaware. That says a lot about the relationship of the bank with its customers. The customers seem to be strangers to it.

Another friend then mentions his story of how he visited his bank for other reasons but was later approached with a pitch to take a credit card. So curious about their credit card product though he had never considered taking one, he takes time to listen.

Asked what limit he would prefer for the credit card and Sh100,000 was the quote that came to his mind. The lady then mentions that they will be glad to process his credit card after he deposits the Sh100,000 as guarantee for the card.

Now, is that really a credit card if you have to guarantee with the same amount? Are banks in such a comfort zone that they really don’t bother with loans and advances as assets to pursue?

The second case is even more interesting because my friend has had that bank account for 19 years now. So, the bank has information history of him for all those years but has never bothered to profile him as a long-standing client to target him with any of their products.

If 19 years of client information is not enough, what kind of information is needed for a bank to assess credit-worthiness of a client and process a credit card without asking for a guarantee?

So, my friends went ahead to show that if he urgently needed Sh100,000, he could easily access it from his sacco — instantly processed on his mobile phone and have the money within seconds.

His sacco is able to give him instant mobile loan and in fact, his limit from the sacco was Sh110,000. So why should he pay Sh100,000 as a guarantee to get a credit card with a limit of Sh100,000 and the sacco loan interest is much lower than the bank credit card?

Some will argue that banks have tightened lending standards, but the answer is simply that banks have opted for government securities as their main portfolio choice at the expense of loans and advances to the public.

It has been noted that the share of government securities as a share of total assets even amongst medium-sized banks has been increasing thanks to the expansionary fiscal policy the government has taken.

But when the government expansionary policy runs its full course under the next government, banks will find themselves outfoxed in the local credit market by other lenders especially those on mobile platform.

Time is ripe to disrupt the traditional credit card with a “Buy Now, Pay Later” fintech model which is much more responsive to today’s financial consumer need.