Ever since mobile financial services, spearheaded by Safaricom’s M-Pesa, a Kenyan innovation, came on the scene, the mainstream banks have been compelled to rethink their strategies.

Banks were caught flat-footed by the novel idea of bringing financial services to people at the comfort of their homes. What was even more revolutionary about these services was the fact that they mainly targeted the unbanked, a segment that the mainstream lenders did not want to even look at because of their low-income status and lack of collateral.

But with the advent of the mobile services, suddenly the mainstream lenders discovered that even those with constrained financial means could be worth the investment when ingenious products that suit them are designed. And the race began to win the hearts and minds of millions of households with low income.

The banks started to rethink their strategy of brick-and-mortar expansion in favour of online services. Equity’s Equitel was born in keeping with the new banking transformation.

While banks were still seeking to find the right balance between physical and digital branches, with some making tentative steps in the digital realm, the Covid-19 pandemic struck. And if there ever was an opportunity to accelerate adoption of digital services, this was one.  The momentum that had begun in 2019, albeit at a steady pace, took a new turn of urgency.

The Bank Supervision Annual report 2018 by Central Bank of Kenya (CBK), shows that the number of bank branches decreased from 1,518 in 2017 to 1,505 in 2018, translating to a decrease of 13 branches. CBK attributed the decrease to the adoption of alternative delivery channels such as mobile banking, internet banking and agency banking.

KPMG business development and knowledge manager Catherine Mutuma is of the view that the pandemic looks likely to be a key accelerator of trends that were already starting to take shape.

“Although banks haven’t had to close all their branches given the essential nature of their services,” Ms Mutuma noted, “Bank operations have nevertheless felt the impact of the pandemic.”

She added that 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 have been operating on reduced hours and with reduced staff.”

Now, Ms Mutuma said, the pandemic is certain to be a game-changer in terms of the haste with which banks will embrace digital forms of services.

“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,” she opined.

Customers too will, going forward play a key role in pushing lenders into the centre of the digital space. Increasingly, customers have become tech-savvy in the way they use online financial services, and such patterns of behaviour will compel banks to respond accordingly so that they do not lose out.

Data from banks point to a future where online services will trump the need for physical transactions. In its financial results in March, Equity Bank reported that 97 percent its transactions in 2019 were conducted outside branch network – through digital platforms and agency banking. KCB Bank also recorded 98 percent transactions on the digital channels as at the end of the year, up from 95 percent in second quarter.

This big shift has certainly been accelerated following the outbreak of Covid-19  

Ivan Mbowa, General Manager for Tala East Africa, noted that in 2022, 33 percent of the industry branch network that existed in 2019 will have disappeared.

This, Mr Mbowa, said is driven by rising competition from fintechs and changing customer financial needs. The pandemic will also have a role in there too, he says.

 “In my 15 years within the industry,” said Mr Mbowa, “I have seen the rate of change pick up to an ever accelerating pace.”

 However, he quickly added “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, during a forum on the future of work and best practices to keep the banking industry vibrant post-pandemic.

Kenya Bankers Association chief executive Habil Olaka said post-Covid-19, there is bound to be an increase in innovative services that keep physical contact to the minimum.

“With this development, we see expansion of channels that rely on physical interaction for instance branch networks, slowing down,” Mr Olaka noted.

“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.”

Experts foresee a situation where as financial technologies unfold and advance, mainstream banks will be operating in a similar way like the fintechs, which are also seeking a cut of the banks’ market through smart mobile banking service. Somehow banks and fintechs will converge at the point of imperative technology.

This convergence, KPMG said, will also be partly 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,” Ms Mutuma said.

The shift, Ms Mutuma added, has put a spotlight on a new area of opportunity for big tech companies like Alibaba, Apple, Google, Tencent which have extensive 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,” she said.

Most already offer payments solutions, she added, 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 said.

“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.”

In the past six months, a number of business relationships globally such as Google’s partnership with Citibank and Stanford Federal Credit Union have been announced to offer smart checking accounts.

Apple’s also announced a partnership with Goldman Sachs to offer the Apple Card credit card. “These will likely only be the beginning,” Ms Mutuma said.

In the face of all these massive changes, experts say there is need to re-skill workers to fit into the new environment.

 “The number of jobs may not significantly change but the nature will change, as the channels of service delivery change,” Mr Olaka said, adding that workers should change with the time.

“For instance, a watchman at the branch’s entrance in the old framework is replaced by an IT security officer on the digital channels platform. As manual processing is replaced by automated systems, the clerks doing essentially manual processing are retooled to be able to manage the automated processing.”


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