Banks have to think out of the box in the face of disruption


Kenyan financial institutions have been tipped to scale up investments in innovative technology and adopt financial sector-focused technology known as fintech to boost their efficiency and customer satisfaction.

The new study by Infotrak warns that failure by banks in the country to embrace digital technologies to counter the disruption from financial innovations may expose them to a tough future marked by thin profits. According to the research titled The Changing Face of Banking, upstart financial technology firms are introducing new customer-centric innovations at a pace unmatched by the formal traditional banking sector.

It notes that while the digital revolution represents a threat to the incumbent banks, they should be wary of focusing on maintaining traditional advantages and rather think of utilising technology to create new opportunities across the entire value chain.

Digital transformation, says the study, can drive adoption of banking services by enabling lenders to develop and deploy tailored, customer-focused products and solutions.

As such, the study says players in the banking industry must innovate and outpace existing traditional brick-and-mortar systems.


“Across the globe, technology continues to change the way businesses package and deliver products and services to their customers,” says the study.

“The non-traditional bank players have posed what seems to be imminent threats to banks as they target the financially excluded and the income deprived bulk of our population.”

The study says the lenders must “think outside the box” or risk perishing if they stick with their traditional rigid brick and mortar models.

The findings of the study note the slow growth in private sector credit, following the capping of bank interest rates on loans by CBK, has significantly contributed to the growth of mobile lending apps further putting banks under pressure to innovate and fight back.

“While commercial banks are trying to catch up with these innovations, they are constrained by rigidity in moving from their traditional ways,” says the lender.

"Few banks have ventured into the digital lending space with products targeted at consumers across all socioeconomic classes either tied to a traditional bank account, for example Equity Bank’s Eazy Banking, or as an independent stand-alone service for example Barclays’ Timiza.”

The study notes the high penetration of the internet and the proliferation of smartphones has contributed to the rapid development of fintech in general providing opportunity for lenders to integrate and expand and boost the efficiency of their services.

“Though high-speed network coverage remains a major challenge, the affordability of both the internet and smartphones is a major boost. In the developed countries where internet penetration is high, the adoption of fintech has not ruled out the importance of traditional banks’ products and services,” it says.

Writing in the study, Mark Kaigwa Founder, Nendo a digital growth consultancy providing marketing, research, strategy and consulting in Kenya says banks that act now and invest in the new technologies will protect their margins but which adopt a wait and see attitude will face a tough time in future.

“The future of the banks will hinge on the ability to act and initiate than to react and retaliate in the marketplace,” he says.

Kenya’s mobile penetration hit 100 per cent for the first time as active customer subscription touched 46.6 million, last December, official data show.