How banks can keep pace with rapidly shifting tech

Kenyan banks are facing a complicated future with the entry of financial technology and an increasingly diversified customer base spoilt for choice, according to a recent research by Infotrak.

Apart from the digitally-driven youth whose finances may still be at a lower scale who would not want to go to the branches, there is the mature client who still prefers to go to the branch and another mix of the two groups who want both non-branch and branch services in equal measure.

Age, level of education, location and the financial muscles of customers define the complicated clientele that banks have now to deal with as digital platforms make the pivot point in the future of banking disruption already sweeping through the market.

In the future, the research found that, 78 percent of the banked Kenyans would most likely use ATMs in future, supported by majority of Kenyans requiring a convenient and flexible channel to access funds.

There is also a group of 67 percent who are likely to use mobile banking and 71 percent who will adopt mobile Apps to carry out transaction. While this may mean a straight march into the future through digital banking, 66 percent of the banked Kenyans are more likely to use physical bank outlets.

“The fact that two in every five banked Kenyans prefer using physical branch outlets and 66 percent, regardless of the age, are likely to use it in future is an indicator that branches are here to stay. Customer interactions at the branch outlets play a huge role in the ultimate customer experience and loyalty. This therefore offers banks that have been previously regarded as not offering competitive customer experience an opportunity to reposition themselves,” Infotrak wrote in the report titled the Changing Face of Banking Survey 2019.

Having a physical branch will not however be any cushion to the strong winds of change sweeping the industry amidst other difficulties associated with the slow growth in private sector credit, following the capping of bank interest rates on loans by banking regulator.

Banks face the challenge of re-evaluating their strategies to avoid getting disenfranchised by the non-traditional bank players who have posed what seems to be imminent threats to lenders as they target the financially excluded and the income deprived bulk of our population.

Analysts believe that the commercial banks while trying to catch up with these innovations, are constrained by rigidity in moving from their traditional ways even as some strive to venture into the digital lending space with products targeted at consumers across all socioeconomic classes either tied to a traditional bank account or as an independent stand-alone service.

With the high penetration of the internet and the proliferation of smartphones, banks now face a complicated customer with the challenge of tailoring the products and services that are relevant to diverse groups of people in Kenya based on demographics such as age, gender, education level, income and geographical location.

Unlimited Profit Opportunity (UPO) Director of Operations Njoroge Kibutu believes that just Kenyan banks must innovate based on the customer trends just like the way banks in the US understood that the US is a consumer-driven society and therefore its citizen’s focus on spending, which meant quick debt products remain in high demand. The US banks then formed partnerships with many companies like Walmart to offer credit to Walmart customers and car dealerships, hotels, and airlines to reach the customer at the source.

“That is the whole idea. Our Kenyan banks have to understand that evolution is part of growth, our population is growing and people are hungry for better. A better life, a better bank!” Mr Kibutu said.

Fintech however remains at the center of Kenya’s future banking landscape. With the exception of mobile money transfer, fintech is the second most used financial service provider among the banked Kenyans.

Besides their bank accounts, more than half (55 percent) of banked Kenyans use fintech as their financial service provider. This relatively new concept has, by far, overtaken usage of traditional financial service providers like Saccos (11percent), insurance (5percent), money transfer companies (2 percent), among others.

First Principles Consulting Managing Director David Cracknell believes digital banking revolution remains unavoidable given the country’s demographics. Banks, he says are already deep into the disruption and banks’ only option is in the product design that meet consumers’ needs in the digital space.

“Kenya is a young nation, almost 60 percent of our population is under the age of 25; 83percent of internet usage is through the mobile phone. Moreover, smartphones reach 90 percent of the population. We can’t simply refresh our services if they are to be competitive – we have to reimagine. In order to do that, we have to return to basic principles and ask ourselves what are we trying to achieve? What do Kenyans need? Given our demographics, how are we designing services for the youth? How are we facilitating their transactions? How are we managing risk? “Mr Craknell said.

There are also imminent risks in the growth towards digital revolution. According to 2016 Forester Wave research, 80 percent of digital security breaches involved privileged credentials. About 80 percent of digital fraud involves theft of identity, confidential personal information and are financially motivated.

According to Myriad Connect’s survey in 2018, over 70 percent of Kenyans have been victims of digital financial transaction fraud, or know someone who has. This is costing banks billions and customers their life savings. The most common form of financial service fraud is SIM swap, an issue that over 90 percent of Kenyan banks leaders are concerned about. Credence Security’s Product Manager for East and West Africa Joseck Wekesa believes that data security is a key concern for users of fintech services and banks must properly weigh the opportunities and threats.

“As we experience growth, data security is becoming an issue of key concern. Banks and Fintechs need to ensure that user cybersecurity awareness is enhanced to minimize cases of fraud. Security concerns would be addressed by preventing cyberattacks through securing passwords, protecting endpoints (devices) and controlling access,” Mr Wekesa said.