Ideas & Debate

Bank innovations should focus on customer needs

Mobile money is now regarded as the consonance between financial inclusion and commercial benefit in client value proposition. FILE PHOTO | NMG 

The proliferation of mobile money services in Kenya is perhaps the most apparent intimation of the versatility that has defined the country’s financial services industry over the past decade. With an estimated 83 percent of Kenya’s adult population accessing financial services through this medium, mobile money is now regarded as the consonance between financial inclusion and commercial benefit in client value proposition.

This new reality has necessitated financial institutions, particularly banks, to redefine their service delivery’s threshold capabilities in an attempt to get a piece of 91 percent of the country’s $85.98 billion GDP channeled through mobile money services. By leveraging on plausible partnerships, banks have been iterating their client offerings through this channel in pursuit of a competitive advantage, some more effectively than others.

The Central Bank of Kenya, which has in the past only exercised its final approval mandate in banks’ product development, recently assumed a more pivotal role by enlisting five top-tier Kenyan banks in piloting an affordable MSME mobile-based financing solution dubbed “Stawi”. This valiant attempt at pushing a financial inclusion agenda through an alternate delivery channel serves to further underscore the regulator’s recognition of the fundamental role that digitisation plays in development of banks’ dynamic capabilities.

Incidentally, stakeholders have also realised that wielding critical mass in Kenya’s largely retail-focused banking sector is essential. This has triggered the recently witnessed consolidations within the sector as informed by banks’ digital banking capabilities, among other closely attuned factors.

Ultimately, the ensuing dynamism within Kenya’s banking sector has propelled it to among the most robust and resilient in Sub-Saharan Africa. With a 23.7 percent Return on Equity (RoE) and 2.8 percent Return on Assets (RoA), both above the continental averages of 15.2 percent and 2.3 percent respectively, Kenya’s banking sector is undoubtedly lucrative.

The continued convergence between technology and banking practice in Kenya has further led to establishment of mutually beneficial associations, with participants’ level of agility determining their extent of engagement. These endeavours have become synonymous with formulation of bank-specific technology roadmaps geared towards capability development in anticipation of scaling bank businesses.


Such roadmaps are however required to be reflective of individual banks’ visions and should be cognizant of the banks’ inherent and aspired capabilities, as well as make requisite provisions for externalities likely to interfere with desired growth trajectories.

In addition, for any bank operating in Kenya to successfully achieve economic moat, it needs to stop iterating its offerings around technology and begin iterating technology in pursuit of meeting its clienteles’ utility.

The focus of any change geared towards a bank’s business enhancement thus ought to be based on its clienteles’ behavioural framework, rather than the bank’s product framework. This certitude was corroborated by a recent customer service survey conducted by the Kenya Bankers Association which, in addition to reiterating client centricity as the epicentre of commercial banking in Kenya, indicated that 49 percent of most bank clients prefer using mobile banking channels; conversely, 16 percent had an inclination to internet banking while five percent favoured ATMs, a clear indication of the inherent paradigm shift in commercial banking away from traditional brick-and-mortar establishments to alternative delivery channels.

It is therefore of utmost importance that progressive banks enhance their digital experience towards according preeminent convenience to their clientele; only then will they successfully transform their dynamic capabilities into distinct capabilities that yield a sustainable competitive advantage.

The first step towards realising this aspiration lies in the appreciation of the positive correlation between digital disruption and business growth. This helps avert the fixation on outlays associated with scaling, instead reinforcing conceptualisation of technology-based scale as an opportunity to develop synergies leading to enhanced business performance and economically beneficial engagements that eventually augment banks’ bottom line.

Research has for instance estimated that above scale, mobile money services can yield a 35 percent margin business, with the adoptive bank saving up to 30 percent on operating costs when network effects kick in from partnerships with like-minded infrastructure owners.

Further research from McKinsey and Company also demonstrates that when scale and network effects dominate markets, economic value undeniably rises to the top, with first movers and their fastest followers principally benefiting from leveraging on early acquired learning advantages. The widely documented successes of M-Shwari by CBA and subsequently KCB M-Pesa corroborate this assertion.

The implication of this harsh reality to the 40 odd banks in Kenya is that they all have to iterate technology, not only to stay ahead of the game, but most importantly to preserve their very existence.