Why Kenyan FSIs are accelerating changes in their business models


    The Kenyan financial services industry has continued to experience waves of disruption that are causing the financial institutions to accelerate the pace of re-evaluating their business models or risk spectating in a fast re-shaping sector.

    Regardless of the versatile technologies the financial institutions are steadily deploying, it is clear from Cyton Report 2019 that rise of fintech in the country has presented an inordinate amount of opportunities in the sector.

    Mobile money, mobile banking, online banking, and most recently digital lending, are among the innovations that have squarely reshaped the sector owing to technological factors that will continue to define the industry’s trajectory in the long term.

    Value of mobile transactions

    In the report dubbed: Fintech Impact on Kenya’s Financial Services Industry, Cyton asserts that technological disruptions greatly affected the Kenyan financial services sector with mobile money being by far the most significant. This is as underlined by data from the Central Bank of Kenya (CBK) indicating that the value of mobile transactions grew at a CAGR of 66.3 percent since inception in 2007, from Ksh 14.8 bn of transaction volume, to Ksh 4.0 tn of transaction volume in 2017.

    Online banking has also gained traction and majority of banks are now aligning their business models towards online channels as opposed to the traditional brick and mortar.

    The most recent innovation to shake up the industry is digital lending, which has been, to some part, a response to the slow growth in private sector credit following the capping of interest rates on loans offered by banks.

    Globally, decentralization of currency has been a topic of interest, pegging the question on whether these emerging digital currencies have a place in the industry.

    In Kenya, the financial services sector has undergone the following major technologically driven transformations:

    The journey of electronic wallet

    Mobile money has been the electronic wallet service that’s allowing users to store, send, and receive money using their mobile phone in Kenya since its introduction in 2007 through Safaricom’s M-pesa platform. Since then, the service has managed countrywide adoption.

    According to September 2018 data from the Communications Authority of Kenya, Kenya’s mobile penetration rate (total number of active sim cards to total population) stood at 100.1percent with the number of active mobile money subscribers being 64.5 percent of the population. By transaction value, the Central Bank of Kenya (CBK) reported a total of Ksh 4.0 tn exchanged through mobile money in the year 2018, equivalent to 45.3 percent of the country’s GDP.

    Source: Central Bank of Kenya

    Online Banking:

    Online banking revolution has caused a restructuring of the traditional banking model. Among the top three banks by market share, on average, mobile and internet banking is the most active transaction channel at 54 percent of the total number of transactions.

    This has resulted to low branch activity, which averages 8.5 percent of the total number of transactions. Banks view technological innovation as means of improving efficiency and reducing costs. The downside of this however has been the negative impact on employment, following branch closures and mass retrenchments.

    According to the CBK, the banking sector’s efficiency, measured by the number of deposit accounts per employee, has increased by 100.5 percent from 770 in 2014 to 1,544 in 2017, driven by a decline in the number of staff in the banking sector by 16.3 percent from 36,923 in 2014 to 30,903 in 2017, against an increase of 67.8 percent in deposit accounts. The charts below highlight the trends in the efficiency score and the number of staff in the banking sector.

    Digital Lending: 

    The digital lending space has grown at an accelerating pace in recent years. Since the launch of Safaricom’s M-Shwari platform in 2012, a vast number of platforms offering these services have emerged. Most recently, Safaricom launched Fuliza, an overdraft facility that enables M-Pesa customers to send or complete mobile payment transactions even if their M-Pesa balance is below the required amount. In the first week of its launch, more than one million customers signed up and borrowed Kshs 1.0 bn, and after one month of operation had borrowed Kshs 6.2 bn.


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