KBA's CEO Shares Invaluable Insights on the Digital Transformation Journey of East Africa's Banking Sector

Has digital transformation changed Kenya’s banking sector in recent years?

There are two main aspects to consider in that regard.??

First, financial inclusion remains one of the biggest challenges for banks today, even though access to financial services grew dramatically from 59% in 2006 to 89% in 2021, according to the 2021 Finaccess Household Survey.?

Kenyan financial institutions continue to harness opportunities for further inclusion through innovative banking solutions.??

Such innovations are already a key part of the digital transformation journey of the country. In our sector, this journey primarily aims to create more channels that enhance access to financial services for customers and increase penetration to underbanked segments of society.?

What is the second aspect to consider?

That would be reducing the cost of accessing financial services, as banks continue to work towards better service for Micro, Small, and Medium Enterprises (MSMEs) as well as clients in remote areas.??

Financial institutions are also alive to the need to ensure the products on offer are adapted to the requirements of their clients. The answer to both challenges, therefore, has continued to be innovative application of technology in the banking segment.?

Indeed, mobile banking picked up much faster in Kenya than in other African countries, largely thanks to M-Pesa.

While currently Kenya ranks significantly higher in access to mobile banking than other East African countries, our financial institutions are also quickly spreading their presence in the region.??

In the process, they champion digital technologies and export innovative solutions across the East African Community.???

How did the pandemic affect the sector’s digital journey?

Without a doubt, the restrictions imposed by Covid-19-related measures inadvertently led to an acceleration of the rate of transformation of the banking sector.??

Banks really had no choice, as containment measures transformed with immediate effect the way their services were consumed. Existing digital channels suddenly picked up, and banks worked to adapt toward supporting the fragile economic activity in the country.??

Some banking institutions, which were previously taking their time in adopting technological solutions, found themselves without an option but to speed up their digitization roadmaps.??

In the absence of digital channels, customers would not have been able to access financial services and would likely move to a competitor who could serve them in the way the times demanded.??

Was the financial services innovation process affected?

In some areas where banks had been considering partnerships for a while, the pandemic forced them to speed up the process. A good example is risk-management frameworks. The challenge with such technologies is that on one hand, systems need to be tested in advance.

On the other hand, testing carries high risk of exposure to cyber threats of sensitive customer data. Many institutions would be unwilling to consider this route even with significant precautions undertaken by their cyber security teams.??

To address the dilemma, some banks leveraged on relationships with FinTech players, who could provide tested solutions without compromising customer data.

For some players, trust in these technological partners is still missing, so they may prefer to develop their own solutions or form their own FinTechs.??

In any case, the mind-set of banking executives is moving further and further in the direction of technology and innovation.?

How challenging was it to launch a major technological innovation like PesaLink?

When PesaLink was being implemented in 2016, there was no similar platform to learn from, so teething problems were expected from the onset. One of the main challenges was that each financial institution has its own unique way of providing services.??

Working with banks to help them adopt and integrate a uniform product into their current operations took time and effort for the Integrated Payments Services team.??

Another area that had to be done well was setting up the payment ecosystem with e-Citizen and making the platform appealing to bank-account holders. This was done, for instance, by offering a transaction limit of up to 1 million KES, providing real-time transactions around the clock, and creating a simple and quick onboarding process.??

The result of these efforts is that 99% of bank account holders have access to PesaLink as of 2022.??

How included have MSMEs been in the digital transformation of the sector?

MSMEs are vital to the economy, both in terms of Gross Domestic Product (GDP) and employment. Yet, they are also the most vulnerable segment, encountering many challenges in the bid to access financial services. The pandemic made things even worse as MSMEs were the most likely to lose support structures, especially when it comes to finance. This meant they were bound to start falling behind on their credit obligations.??

As Kenya Bankers Association, we pay close attention to this group of enterprises through interventions such as the Inuka Enterprise Program. The latter provides a free digital and face-to-face curriculum aimed at building capacity on the operations and reporting levels within the MSME segment.

The program helps these small enterprises put together the few but diverse details they need to be able to tell their story convincingly to a financier.??

Beyond the know-how provided through the Inuka Enterprise Program, MSMEs have access to many targeted digital solutions to help them navigate the dynamic environments they operate in.??

**This article was first published on the Xetova website.?Read it here.?**