How Covid-19 is catalysing race for e-banking


The Covid-19 pandemic looks likely to be the catalyst accelerating the reduction of physical branch networks in the banking industry, as lenders eye more uptake of digital services.

The pandemic comes at a time when lenders had undertaken new measures in 2019 by cutting costs and restructuring their operations in favour of shift to online banking while focusing on increase in market share and tapping into regional markets.

The last Bank Supervision Annual Report 2018 by the Central Bank of Kenya (CBK), shows the number of bank branches decreased from 1,518 in 2017 to 1,505 in 2018. This means 13 branches were closed.

Nairobi County registered the highest decrease with the number of physical banking outlets dropping by 11 branches.

About 10 counties registered an increase of 12 bank branches while nine counties registered a decrease of 25 bank branches. In 28 counties there was no change in bank branches.


The CBK attributed the decrease to the adoption of alternative delivery channels such as mobile, internet and agency banking.

KPMG’s associate director, Transformation Martin Kimani said the pandemic could potentially be a significant accelerator of trends that were already starting to gather.

“Although banks haven’t had to close all their branches given the essential nature of their services, bank operations have nevertheless felt the impact of the pandemic in most countries,” Mr Kimani said in an interview with Digital Business.

“Staff shortages and the safety of employees, combined with less commerce occurring in general, have meant that around a 25 percent of bank branches have shut during the outbreak in many countries and territories. Of the remaining 75 percent, many are open on reduced hours and with reduced staff.”

Even as the bank branches are expected to remain open as the crisis passes, Mr Kimani doubts whether the situation will be the same in the long run.

“The fact is that banks around the world have generally been reducing the size of their branch networks in recent years. While there remain some branch openings, overall the net effect has been a reduction. This might therefore mean that banks have already reached peak of branches.”

The pandemic has seen customer demand for branches that had fallen prior to the crisis, drop further as banking behaviour changes and consumers move increasingly to online and mobile channels.

In releasing annual financial results in March this year, Equity Bank reported 97 percent transactions in 2019 done outside branch network — through digital platforms and agency banking.

KCB Bank also registered 98 percent transactions carried on the digital channels as at the end of the year, up from 95 percent in second quarter.

“In this time of pandemic when movement is so restricted for so many, there is no doubt that remote banking will be seeing huge levels of growth,” she added.

Ivan Mbowa, general manager for Tala East Africa, a digital lender, has predicted that in 2022 banks would have lost at least 33 percent of the industry branch network that existed in 2019.

Mr Mbowa has attributed this to declining profits over the adverse effects of the pandemic and competition from fintech exacerbated by the changing customer financial needs.


Profitability levels to asset quality of the banks is expected to reduce from 23 percent to 17 percent in 2020 according to CBK, despite strong liquidity at 53.9 percent against the statutory minimum of 20 percent.

“In my 15 years within the industry, I have seen the rate of change pick up to an ever accelerating pace but I have never seen the speed of change to societal norms and business practices that Covid-19 forced on us within less than 90 days. This is the year that enabled digital financial services transition from bank’s IT department to become a major division across all banks” said Mr Mbowa.

He spoke in a meeting on the future of work and best practices to steer the banking industry to thrive in the new normal and post-pandemic future.

For the industry’s lobby group, it is certain of the evolution of banking where service delivery is migrating from brick and mortar to digital channels.

Kenya Bankers Association chief executive Habil Olaka noted that Covid-19 has accelerated this migration as social distancing has become the norm discouraging physical contact to the bare minimum.

“With this development, we see expansion of channels that rely on physical interaction for instance branch networks slowing down. Whether this will lead to closure of existing branches is yet to be seen but certainly branch expansion will slow down, as banks innovate and explore newer and more efficient ways to access and extend services to their clientele,” Mr Olaka said.

Due to the highly competitive environment, most banks are seen becoming more like the fintechs. On the other hand, the fintech companies are eyeing the market share served by the banks through smart mobile banking service.

KPMG, also among the Big Four auditing firms, has said this has been driven by investor interest and capital pouring into fintech companies — digital banks, insurtechs, wealthtechs and proptechs.

“Most banks are trying to adopt a win-win alliances strategy with the fintechs. The financial services industry today is characterised by change,” Mr Kimani said.

The shift, she added, has put a spotlight on a new area of opportunity for big tech companies like Alibaba, Apple, Google, Tencent which have reach and deep roots into customers’ lives and robust customer data.

“Big techs are also constantly looking for ways to provide their customers with more value, to enhance customer loyalty by providing a more integrated ecosystem. Most already offer payments solutions, so extending their offerings to include financial products makes sense. However, there are no strong indicators that the big tech companies want to become banks and vice-versa,” she added.

“The regulatory burden is so far considered too high for their appetite. Big tech and financial institutions are already investing in fintechs to help advance their strategic goals.”