Kenyan banks risk being crowded out of the daily payments and commerce space in financial intermediation by agile and innovative financial technology (fintech) companies and must act urgently to protect their turf, global consultancy McKinsey & Company has warned.
The firm says, in its eighth annual review of the global banking industry, that due to the big leap in digital finance through products such as Safaricom’s M-Pesa #ticker:SCOM, Kenya has a higher divergence from traditional bank-based transaction payments than other markets.
McKinsey notes fintechs are increasingly influential in digital and mobile payments and credit, having raised over Sh30 billion in capital and gained over 20 million customers.
“In devising their strategies, banks could focus on owning the next generation payments landscape (for example contactless, QR, e-commerce etc) and building an ecosystem of value added services to recapture share in everyday commerce and transactions,” said Tawanda Sibanda, a partner at McKinsey.
“Banks could also move first to serve the long-tail of underserved small and medium-sized enterprises (SMEs) in the market through entirely digital offerings.”
The company segregates intermediation into three layers — everyday payments and commerce, relationships and insights, and low-touch business-to-business services — with banks not thought to be under immediate threat in the latter two which require extensive human interaction.
In the first category though, fintechs are thriving because of the growing penetration of smartphones and the willingness of customers to embrace digital banking and mobile money.
Fintechs, especially those offering mobile loans, are also loosely regulated in contrast to the highly watched formal banking sector, allowing them to lend with fewer constraints in areas like capitalisation and know-your-customer requirements.
They are also innovating and delivering new products at a faster pace than banks, the report says.
Traditional lenders have, however, been trying to muscle in on the digital banking space, linking their customer accounts with mobile money platforms such as M-Pesa and lending through mobile platform.
In February last year, the lenders launched their own interbank money transfer platform known as PesaLink, in an effort to claw back some of the digital payments ground ceded to M-Pesa.