The future of banking is digital

13th Jul, 2017

Sometimes, a revolution takes place that is so fundamental that many people completely miss it, until it has caught on and then the question usually is: “How did we not see that coming?”

In an interview with Brett King, the banking guru who was recently in the country, KCB Group CEO & MD Joshua Oigara narrates how one grocery trader from Mombasa told him how the Bank’s mobile micro-lending service powered by M-PESA had transformed her life.

The smallscale trader, who is among the many ‘Mama Mboga’s’ across the country leveraging on mobile banking services, narrated how she now has quick access to credit by applying and receiving mobile loans promptly without visiting her bank.

With the credit – which averages Sh20,000 – she buys her stock early in the morning and repays the loan the same day after her sales, ensuring that her business has reliable, quick and affordable credit.

The KCB M-PESA mobile loans have grown quickly, totaling $180 million (KSh18.5 billion) since the launch of the product in March 2015.

At the onset of the new product, the bank had set an ambitious target of signing 2.5 million new customers in a year. At the end of that period, 7.5 million accounts had been opened.

As the bank was announcing its 2015/16 financial results, it revealed that 90 per cent of its loans for the period under review were processed through the mobile phone. According to its data, it’s the mama mbogas, the corner shops, artisans and traders who were borrowing the most.

The CEO said that acceleration of technology has allowed the bank to, “Imagine unprecedented growth of our business.”

Oigara’s statement was unthinkable a decade ago when commercial banks were still stuck in the conventional way of doing business.

At the time, only three out of 10 Kenyans had a bank account. In 2016, that number jumped to eight out of every 10 Kenyans, thanks largely to mobile money accounts, leap frogging South Africa, Nigeria and Ghana, according to statistics from the World Bank. It is also during this last decade that terms like “financial inclusion” and ‘fintech’ became buzzwords to loosely describe the impact of the intersection of financial services and technology, even as Kenya was crowned the mobile money capital.

What banks saw as a threat in 2008 has now provided a lifeline for the sector, and has been instrumental in pushing new products through new channels. For instance, today, M-PESA partners with 40 of the 43 banks in Kenya allowing customers to move money swiftly between bank accounts and their phones.

The integration of mobile and digital technology in the core banking system is however, inadvertently affecting how branches are run and manned.

A Citigroup report projects that by 2025, banking jobs will shrink by 30 per cent as a result of automation in retail banking.  In Kenya, the impact of the technology whirlwind plus tightening regulation and a competitive environment has seen a number of banks announce layoffs or a hiring freeze.

Most retail services that traditionally needed interpersonal interaction – including customer service – have been swapped with cash-depositing ATMs, transactional apps, social media, and mobile and online banking.

In the last quarter, Kenyan banks, on average, reported that more transactions were completed through alternative channels like mobile, agency and online than through branches. The future is here and now.

What will be left of banking halls, according to John Csiszar of GoBanking Rates, will be an Apple store-like experience where customers interact with in-bank apps and only reach out to staff for personal queries and directions.

“Banks hoping to increase sales in the future are considering this transformation as a way for customers to engage more directly with the bank and its products, just like in an Apple store,” Csiszar says.

Processes like loan approvals, which would in the past go through many hands at the bank, have been taken over by big data analytics and algorithms, which have proved to be more efficient, faster and accurate.

As a result, there has been a proliferation of mobile lenders like Tala and Branch competing alongside commercial banks for customers who were previously considered too risky.

The International Finance Corporation (IFC) estimates close to 200 million businesses lack access to loans though they are need of credit.

The impact of access to quick and affordable credit for small and medium businesses is a potential game changer in Africa and other emerging markets.


Customer is king

While tech changes might tell one side of the story, customers’ culture and behavior stand on the other side of the equation in deepening financial inclusion.

This is what Central Bank Governor Dr Patrick Njoroge refers to when he says that, “people vote with their feet, or in this case, their wallets.”

According to the Governor, once customers see a product that meets their needs, that is convenient and affordable, they don’t need much convincing. In fact, they demand faster and better channels.

Dr Njoroge reinforced his customer-centric view, saying the regulator put pressure on an inter-bank app developed by the banker’s association to speed up the processing time.

And it’s not just regulators pushing the customer to the centre.

In an IBM study titled ‘The Customer Activated Enterprise’, more than 4,000 C-Suite executives agreed on three major trends shaping enterprises: Opening up to customer influence, pioneering digital-physical innovation and crafting engaging customer experiences.

The most radical shift for managers, the study notes, may be a view on what it means to collaborate with customers while at the same time leveraging on emerging technology trends.

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