• The number of unbanked Kenyans has reduced significantly from 43 per cent to 11 per cent.
•The bulk of transactions in Equity Bank, KCB group and Co-operative Bank are now performed via non-branch channels.
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Smaller banks risk being reduced to zero and losing out the banking sectors market share on the vast growth of fintechs, a new survey shows.
In its report titled Bank of the Future, rating agency Moody’s attributes the looming death of smaller banks to limited financial muscles to invest.
However, the same report states that small banks that spend smart and leverage on successful technology can find their own niche to compete.
According to data from Central Bank, there are currently 21 smaller banks in the country with as low as three branches, 15 medium-sized banks, and six large banks.
Moody’s report shows that the coming of fintechs has pushed access to financial services from 26 per cent in 2006 to the current 83 per cent.
While the growth in reliance on mobile money services has grown tenfold from four per cent in 2006, the number of unbanked Kenyans has reduced significantly from 43 per cent to 11 per cent.
However, these has only seen larger banks benefitting as their growth has moved up from 15 per cent to 44 per cent on aggressive partnerships with mobile money platforms.
For instance, the bulk of transactions in Equity Bank, KCB group and Co-operative Bank are now performed via non-branch channels.
In 2018, the three banks recorded a paltry 4, 8, and 12 per cent in-branch transactions respectively with the rest of transactions coming from mobile and agency channels.
According to the study, increased smartphone ownership, innovative products, access to customer data for the provision of bespoke services will differentiate the winners from the losers. Smartphone usage, for example, is expected to increase to over 50 per cent of the population over the next two years, as they become more affordable. This will raise customer expectations and will lower barriers to entry for other fintech players.
Some of the top innovations taking the sector by storm include open data initiatives, service aggregators, distributed ledger technology, cloud computing, big data analytics, and artificial intelligence.
While smaller banks struggle to survive in a market that is largely mobile-driven, the future is still not a walk in the park for large financial institutions.
The report shows that large banks must fight to retain a direct relationship with customers or remain mere financial product manufacturers.
Case in point being M-pesa’s Fuliza overdraft services which is manufactured by CBA and KCB and distributed by M-pesa.
“This trend would leave banks as purely financial product manufacturers, limiting their direct customer interactions and compressing their potential margins,” the report says.
However, as banks build a track record of lending to mobile customers, t is expected that the more they collect the data, the more they will improve their direct customer access and relation.