For many Kenyans who joined the workforce in the eighties and nineties, opening the first bank account was a major decision.
This is because the bank you selected would often end up becoming a life-long commitment that would also be the source of your first personal loan, car loan, mortgage or for receiving pension payments.
In fact, many Kenyans found themselves with their current bank accounts because their parents opened junior or teen savings accounts for them there.
Today, adoption and evolution of financial technology (fintech) services is causing a major shift in how consumers interact with their banks, disrupting brand loyalty and threatening the survival of commercial lenders.
Experts now say commercial banks need to come up with innovative ways of attracting and retaining new, younger and tech-savvy clients as the market becomes cluttered with digital financial services and apps.
“In the past, banks competed largely on price, product and scale of the branch network,” says consulting firm EY in a report that looks at the disruption of financial institutions by fintechs.
“Banks with large branch networks won customers through convenience and visibility. Today, however, the main competitive front is customer experience, which combines those traditional elements with a new emphasis on simplicity and convenience of interactions across a variety of channels.”
As more services become accessible through the smart phone, Kenyans today have few reasons to visit banking halls, a factor that has become the biggest manifestation of humans losing jobs to machines.
According to official Government data, Kenya’s financial and insurance sector lost the highest number of employees in recent years, with more than 2,790 personnel losing their jobs in the banking sector in 2017 alone.
“All staff levels recorded a decrease leading to an overall decrease in staff levels across the sector,” said Central Bank of Kenya in a recent credit monitoring report.
“This is an indicator of the consistent improvement in banks’ efficiency as a result of review of business models, automation of processes and shift from ‘brick and mortar’ to alternative digital channels.”
However, customers’ personal interaction with bank staff strengthens brand loyalty and this creates a challenge when replacing humans with machines in banking halls.
Sales teams also find it easier to sign up customers to new or additional services and this personal interaction further boosts referrals – the most reliable form of marketing among consumers.
“Better experiences are not exclusively about better software and technology,” says the report by EY. “Cultural and human resource factors also matter. Banks will need to attract radically different skills and talent — and do so at scale.”
Data analytics, the resource that has made fintechs such as Tala and Branch a runaway success and darling of investors, further presents a double-edged sword for banks and their brand heritage.
On one side, commercial banks can analyse the trove of financial data they have on their customers and improve what they know about them, developing more targeted and convenient services.
However, this opportunity has been largely underutilised, with financial service providers mimicking products from each other in the guise of innovating new offerings.
“Banks are, in particular, missing an opportunity with digitally savvy but financially non-savvy consumers; this segment is currently disengaged with banks’ digital channels because banks often fail to provide the quality advice and guidance these consumers need,” says EY.
This presents a special challenge for Kenyan banks that need to reach the millions of young people born in the age of mobile and social media that will form the next generation of account holders.
The advantage of convenient services served through mobile apps, often in partnership with mobile service providers, could also have a dimming effect on the brand visibility of the financial institutions.
In the last few years, several commercial banks have developed and rolled out mobile lending products in partnership with mobile service providers, delivering mixed results.
Interest incomes have gone up for some lenders including Commercial Bank of Africa (CBA), Kenya Commercial Bank (KCB) and Equity Bank.
On the other hand, customer engagement with the bank and adoption of additional products often flattens, eroding brand loyalty.
A significant 41 per cent of customers in the EY study said they would change financial service providers if a different one offered a better experience.
“Curiosity and excitement about banking options combined with increasingly robust and sophisticated digital tools mean banks are increasingly at risk of customers voting with their feet,” explains the report.
With many Kenyans having multiple bank accounts, SIM cards and now mobile lenders, this presents a crucial Achilles heel for banks in expanding their footprint.
To stave off additional loss of market share to fintechs, banks will also need to radically change internal processes and customer offerings.
This includes simplifying product portfolios, features and pricing. In addition to this, banks will need to broaden services and expand their operations into new territories to create an ecosystem of value-added services, including non-financial.
“Better customer experiences start with deep knowledge and understanding of why and how customers interact with the bank over time, the so-called ‘customer journey’” says EY.
“Customer needs and expectations should drive the experience design, not outdated IT processes or legacy organisational structures. In this sense, traditional banks should emulate fintechs — which begin with a ‘clean slate’ in seeking solutions for consumers.”
A good place for banks to start is finding ways of graduating the millions of borrowers in their mobile loans portfolio into more engaging and long-term product offerings that cement brand loyalty.
Ultimately this will be good for the market through stimulating competition and innovation, leading to more options for discerning consumers and better value for money.