Banking Transaction: An East African Perspective
East Africa’s banking industry is growing at a rapid pace as technology unlocks access to customer segments that were once too costly to serve. Mobile technology, in particular, has been revolutionizing the East Africa banking and payment system. Banks are increasingly partnering with Mobile Network Operators (MNOs) to enhance the delivery of banking services to customers and to reach the unbanked population.
In Kenya, for example, Commercial Bank of Africa (CBA) partnered with Safaricom to offer M-shwari while in Ethiopia, microfinance institutions are partnering with M-Birr to increase outreach to the unbanked. Mobile Virtual Network Operators (MVNOs) are also gaining popularity and a number of announcements have been made including the recent partnership between Equity Bank and Airtel to launch Equitel, a platform that allows customers to access credit loans, perform cross border money transfers and send and receive money from other commercial banks. MVNOs have promised to enhance accessibility and – in a greater sense – promote financial inclusion by providing financial services to the masses through the convenience of their handsets.
The use of social media continues to grow with Kenya experiencing smart phone growth rates and internet penetration rates of over 50 percent. This has led to increased e-commerce in the sector, with many banks leveraging online platforms for service delivery and customer growth.
Banks are aspiring to build agile business and operating models
Global and regional trends are shaping business transformation in the East Africa banking industry with banks seeking to transform both their business strategies and operating models. In this era of high levels of financial inclusion, banks are facing stiff competition from non-traditional competitors who have grown significantly in areas traditionally exclusive to banks. Growth of Savings and Credit Cooperative Organizations (or SACCOs), microfinance institutions and informal financial service providers is also heightening competition.
In this environment, retail banks operating in East Africa will need to build agile businesses. Technology in the banking sector is constantly evolving, customers’ expectations and preferences keep changing and financial products and services are being reinvented. It will take constant innovation to properly respond to both customer demands and competitive pressure.
At the same time, customers increasingly expect a new experience from their bank. This means that banks will need to not just develop new applications but also new functionality and rapid enhancements to existing ones. Banks are therefore focused on adopting business models that are efficient, cost effective and sustainable.
Personalizing customer experience
East Africa banks are also building digital capabilities and increasing customer touch points in an effort to personalize the customer journey and create a seamless customer experience. This has driven an increase in alternate channels including internet, agency, mobile banking, and contact centers. The modern bank customer is more demanding, more aware and more tech-savvy. The customer expects services anywhere, anytime and on any device and banks must therefore invest significantly in enhancing the customer experience. The ever changing regulations
Recent publications of the revised Prudential Guidelines and Risk Management Guidelines in East Africa Central Banks sets the scene for significant enhancements in risk and capital management in the banking industry in East Africa. In particular, there has been an increase in minimum core capital across the East African countries.
This is expected to boost the financial stability of the banking sector and reposition under-capitalized banks in order to enable them to play enhanced roles in the sector. It will also promote the entry of large banks and banking sector consolidation.
For banks in East Africa – and across the continent – successful business transformation will require keen focus in four key areas:
Strategy: Ensure a strategic position in the disruptive market
- Formulate and implement an innovation strategy: Banks need to be continuously seeking out and developing innovative products and services.
- Think holistically from the customer perspective: Develop and execute a complete end-to-end digital transformation strategy in order to improve customer engagement.
- Reduce operational costs to stay competitive: Focus on applying automation and business process improvements where applicable.
- Enhance partnerships with other players: Seek out traditional and non-traditional partners that can help bridge your capability gaps.
Security: Invest in robust controls and system security
- Create a cyber defensible position: As banks focus on innovation and increase reliance on technology the threat of cyber breach increases.
- Ensure a well-controlled operation: Banks need to invest heavily on governance, controls, ethics, policies and information systems audit.
Customers: Enhance customer loyalty
- Know your customers and their preferences: Improve the use of data, customer analytics and external data to drive customer insights.
- Understand the environment: Invest in market intelligence to gain information on key markets and customer segments.
- Meet the pace of customer demand: Focus on providing products and services in real time. 4. Regulation: Invest in resources and capabilities to comply with regulations
- Ensure regulatory compliance: Banks should ensure they have the right resources and the right capabilities to remain compliant.
Please download the 2016 Africa Banking Industry Customer Satisfaction Survey