What did Kenyan Banks learn from embracing ICT innovation?


Rapid advancement in Information and Communication Technology (ICT) has had a profound effect on the banking industry and the wider financial sector over the last 2 decades. ICT is now a tool that facilitates the banks’ organisational structures, business strategies & customer services – Dr. R Jayamaha (2008)

That declaration was echoes by Mr. Titus Karanja, Director, Co-operative Banking Division, Kenya, during the Plug and Play session at the Fin4Ag Conference in Nairobi this week. Mr. Karanja, observes that ICT is used under two categories in the banking industry;

  • Communication and connectivity
  • Business process re-engineering

According to the Fin Access National Survey (2013), Kenya’s formal financial inclusion now stands at 66.7% in 2013, a leap from 41.3% just four years earlier. This rate of expansion in the reach of the financial sector places Kenya second only to South Africa on the continent.

More than twice the number of Kenyan adults use mobile phone financial services (11.5 million) compared to banks (5.4 million). The wide use of mobile phone financial services in Kenya emerged recently in a rapid fashion that saw uptake more than doubling from 28% in 2009 to 62% in 2013.

According to Mr. Karanja, technology has advanced greatly and plays a major role in improving the standard of service delivery in the financial sector. Long gone are the days when customers queue in the banking halls waiting to pay their utility bills, school fees or any other financial transactions.

They can now do this at their convenience – using ATM cards or via the internet from the comfort of their homes.  Due to the tremendous growth of the mobile phone industry, most financial institutions have ventured into previously untapped areas and have partnered with mobile phone network providers to offer banking services to their clients.

The mobile money transfer business emerged as the biggest threat to Kenyan banks in the early 2000s and they felt compelled to join the bandwagon to avoid losing out. In Kenya, most banks have embraced and used ICT and mobile money to make their services accessible to their customers and tap the vast rural unbanked population. Use of mobile money boosts the ability of the banks to distribute products cheaply, run the back office and enhance capabilities for cross-selling products.

Use of ICT has significantly grown among banks in the country, from SMS-based model, transaction-based model and current multi application models where customers can deposit and withdraw cash through mobile phones.

Throughout these stages the banking sector has learned various crucial lessons according to Mr. Titus Karanja, namely:

  • ICT in banking is different from mainstream or traditional banking models. So banks had to transform and create new models to be able to use ICT.
  • Mobile money registration requirements are less and allow for ease of access to many services. Banks had to learn how to deal with third party providers who are key to effectively use ICT in the banking industry. According to Mr. Karanja, banks initially saw ICT innovators as competitors rather than partners and this hindered the use of ICT in banking. ICT use shifts power from banks to the customers and third party providers, unlike traditional banking where banks had power over deposits and withdrawals.

Great value has been realised from the banking power shift and the financial sector’s eventual embrace of the potential of ICT integration.

But let’s be clear, vibrant mobile banking requires improved network coverage, quality connections and competitive pricing to ensure affordability to all prospective partakers. Service providers might be better off availing their services at lower cost-points to net more users rather than insisting on high levies that force too many potential service users out of the market.

By doing so, they will also be able to boost their revenue streams by focusing on  transaction volume and service quality. On the policy front, there is an urgent need to devise policies and strategies to reverse gaps in terms of gender, income levels and rural – urban demographic divides.

Photo credit: iHub

Blogpost by David Mwenda, Social Reporter for the Fin4Ag Conference.

Copyright © 2016, CTA. Technical Centre for Rural and Agricultural Cooperation

CTA is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.