How COVID19 transformed Kenya’s banking sector: a glimpse into our alternative future
Six months ago, a little-known virus from Wuhan, China, set in motion some of the most dramatic changes to Kenya (and indeed the world’s) banking sector. But Kenya’s banking sector is known to have a glacial-like acceptance of radical developments. As witnessed by their initial reaction to M-Pesa’s launch in 2007, it would take the bankers 10 years to create a suitable response in the form of Pesalink. And so we watched as this little-known virus made its way quickly across the world into Kenya. Measures aimed at mitigating the spread of the virus — such as social-distancing and country-wide lockdowns — had a dramatic impact on the economy. The price of this slowdown resulted in about 1.7 million Kenyans losing their jobs.
Leadership teams across most industries threw away their 2020 targets devised before March 2020. While a few idealists spoke wistfully about everything going back to normal by June, they were clearly living in an alternative reality. Six months down the line, leaders have an increased appreciation for worst-case scenario planning arising from black swan events, such as global epidemics.
The legendary management consultant Peter Drucker once said that the best way to predict the future is to create it. I would argue that the second-best way to predict the future is to vividly imagine it and act accordingly.
Today I present a number of predictions about the future of banking. I foresee that bank branches will join telephone booths in archaic redundancy and that bank headquarters will look a lot more like your favourite co-working space. In addition, bank CEO succession plans are being re-written as we speak and you’ll be more likely to start banking with your current telco provider than your existing bank. Finally, the only winner in this very near future is you, the consumer who can look forward to cheaper financing, diversified offerings and a better relationship with your existing providers.
Let’s take a sneak peek into my magic crystal ball and get a glimpse of what the Kenyan banking sector will look like in 2022:
I predict that 2019 will have marked the peak of industry bank branches and now, in 2022, we have lost at least 33% of the sector branch network that existed in 2019. When future historians one day write the post mortem of physical bank branches, they will blame this on the rising cost of ensuring health and safety compliance after the onset of COVID19 with reduced customer foot traffic laying the final nail in the coffin. Case in point: as of September 2020, the physical bank branch is currently in the ‘ICU’ with 25% of Kenya banking sector branches temporarily closed since the onset of COVID-19.
The predicted transition of bank offices to co-working spaces will quickly follow bank branch closures. Chief Financial Officers (CFOs) of major banks will start to turn their focus inward to head office spaces and realise that ever since the human resources department introduced remote working less than 40% of all staff at HQ work in the office 5 days a week. Once schools resumed and parents realised that the home office environment was suddenly more conducive to working, the opposition to working from home — originally faced in 2020 — is quickly reversed. Therefore bank leadership has begun rolling out hot desks across HQ: no one really owns a cubicle anymore, employees come into the office and find a space for a few hours, perhaps print some documents and attend some team meetings.
The predicted revision of existing bank CEO succession plans will be traced back to 2020, the year that enabled digital financial services to transition from a pet project tucked away in the bank’s IT department to become a major division across all banks. In 2022, banking in Kenya looks like a world first envisioned by Brett King (the Banking futurist author), where banking is everywhere except at the bank. As a result, across Kenya’s largest banks, CEO succession plans all centre on the digital financial services leader as the next group CEO. Corporate banking head is no longer the reliable path to becoming the future bank CEO.
I believe that two years from today we will struggle to differentiate banking from financial technology, popularly called “fintech”. Unlike a few years ago, in 2022 every non-bank fintech is now regulated by the Central Bank and every bank has an app for customers to download from the Google play store. Banks have begun to launch local incubators and create their own startups within the bank and occasionally acquire startups.
In the very near future, competition in financial services isn’t limited to banks and fintech, as telcos now assume dominance outside their core business. The largest telcos began to look like shadow banks and so Safaricom was finally forced to split up M-Pesa from the telecom business and M-Pesa is now a licensed independent non-bank financial institution. In 2022, speculation is rife that M-Pesa is going to acquire a tier 1 bank and complete its transition into a full-fledged digital bank with all necessary licenses. Banks are worried but these fears fall on deaf ears since M-Pesa is deemed to be regulated on an even playing field. In response, banks are beginning to think of acquiring a telco.
Two years from today the biggest beneficiaries of these changes are banking customers. Branchless banking and fierce industry competition have introduced a level of convenience that reversed the historical power dynamic between banks and customers. Fintechs have expanded beyond consumer lending and infiltrated business lending, insurance and savings. The net result is that lending rates are falling, deposit interest rates are rising and customers are beginning to complain about how difficult it is to pick from the many amazing options in front of them.
If hindsight is 20/20, I would argue that bank leaders need to ask the following questions and then act accordingly:
1. If bank branches are on an irreversible decline, how can they change the use of these critical spaces given that customers don’t want to need to visit a branch but may also want the option of occasionally meeting the bank?
2. If the very near future removes any distinction between fintech and bank, will banks need to become more like fintech or will fintech need to become more like banks in order to capture a share of the market in the future?
3. Is the regulator going to enable or delay this brave new world that I have described?
Now that we have predicted the near future, it is up to bank leadership to create a future in which they find themselves on the right side of history.
