A case against brick and mortar banking

He transformed a building society into present day Equity Bank, which is now market leader by customer base and second in profitability.

Equity Bank Kenya CEO James Mwangi dares dream again.

Mwangi said Equitel had processed 150 million transactions. This is compared to last year’s 82 million transactions at such a time, translating to 83 per cent growth.

With agents having processed 18 million and branches 16 million transactions in nine months, Equitel alone handled more than four times what the two platforms processed together.

Mwangi said the platform was now receiving up to 50,000 loan applications during weekdays with the demand rising to a high of 120,000 on weekends. Buoyed by these numbers, Equity boss believes his bank has fully disrupted the market and wants to de-emphasize on branch network.

“We may sell a few,” Mwangi told an investors’ briefing in Nairobi at the bank’s headquarters last week when asked what the future of his more than 170 branches spread in the country will be.

According to Mwangi, customer traffic is heading to digital platforms and therefore eroding the traditional functions of his branches. Initially, the bank hit the country by storm, establishing branches in remote areas once ignored by first mover lenders.

Having launched Eazzy Bank, a digital wallet that brings together over 10 functions, Mwangi says it has now become easy to acquire more merchants. “It is like we are announcing the death of brick and mortar banking. Visible cash has served us long enough,” said Mwangi on the day he launched the platform last month.

His decision, he said, was backed by the bank’s research finding that over half of its customers prefer mobile banking.

Having taken five years to get 9,000 merchants, Mwangi told investors that the digital platform has enabled it reach 15,000 in just two weeks of launch since it allows for inter-operability. Cumulatively, for nine months to September 2016, the bank has disbursed 4.5 million loans on mobile phone. In September last year, it had only done 966,000.

Over a similar period, the branches managed only 846,000 loans, being more than five times lower than what the mobile platform did. According to Mwangi, the repayment rate of mobile loans is at 98 per cent, meaning the risk of default is significantly low.

On average, the bank lends between Sh500 million and Sh700 million through mobile. Of these, the bank says that between 37 per cent and 41 per cent of the applicants are usually successful. “What Equity does on phone is not just petty Sh1,000 loans. It is the traditional loans that are also available in branches,” Mwangi said.

So far, the bank has over seven metrics to judge the customer’s ability to repay including analysing their activity on social media. The number of Equity Bank agents’ transactions has grown by 23 per cent to 46 million while the value of transaction grew by more than a third to Sh331.6 billion.

With 9,000 merchant outlets by the end of September, they handled 23.5 million transactions. The bank has partnered with key payment firms such as Visa, Mastercard, Union Pay and American Express. Through this, it reaped commissions worth Sh794 million, a growth of 102 per cent from Sh394 million it got in a similar quarter last year.

Equity boss now feels it is time to shift the role of branches. “The authority we had given staff has now been shifted to customers. Bank is no longer a place to go. It is what you do on your devices,” he said.

Mwangi now wants his staff to mentor, coach and help grow relationship with Small and Medium Enterprises that may still want more physical attention. In addition, the staff will be managing the platforms as well as processing payments for merchants and agents.