Banks need to leverage their superior product knowledge to stay relevant

East Africa’s retail banking industry is growing at a rapid pace with banks using technology to target customer segments that were once too costly to serve due to remote locations which would require an extensive branch network. Non-traditional competitors have grown significantly in the marketplace providing services traditionally exclusive to banks. Banking services are overshadowed by the ever-growing presence of payments solutions companies and mobile operators providing low-cost alternatives. These developments require a stronger infrastructure and more comprehensive regulations than currently exist, in order for the industry to be sustainable over the long run.

Leveraging the right channels
Banks in East Africa have only recently started to see a large portion of their revenues come from the retail banking space with the arrival of alternative channels such as internet, mobile and agency banking. With this development, financial services quickly expanded with a number of new local banks focusing on the microfinance segments looking at emphasising branding to grow their physical footprint across the country. However, the new capital requirement of KES5 billion ($49 million) is likely to lead to a number of mergers in the industry as banks look to gain market share.

For markets in East Africa, infrastructure plays an important role in product development. It is the main reason internet banking is not as prevalent, though mobile banking presents opportunities. One example is the emergence of M-PESA which transformed the banking industry through pin-secured SMS messaging where customers can deposit or withdraw cash through a number of banking agents. As technological solutions gain traction in bringing down the barriers to market, banks must focus on the evolving customer-oriented culture and push the envelope of innovation in customer service. While banks seek to boost their market presence in the unbanked regions of East Africa, they will need to leverage the right solutions to address current trends.

Fighting telcos for market share
The need to make mobile banking more accessible is the biggest concern for the financial services industry in the region. Banks are behind on payments and collection as telcos gain prominence by being the first to provide payments platforms in East Africa. In 2014, the number of card transactions dropped while transactions on M-PESA, the major disruptor in the region, went up.

Against this backdrop, banks are fighting back with value-added services where they can deliver more efficiently and in which they have more product knowledge, such as consumer loans and insurance products. Banks must focus on products that are most relevant and valuable to customers and promote them through their channels. Whether customers transact at the branch or through mobile applications, they are looking for a similar experience across all touch points. In order to encourage the use of alternative channels, banks must create reasons to log in such as special promotions which are only available online or through mobile.

Leveraging technology
The traditional view of many financial institutions regarding technology is that it presents a solution to complicated back-end processes but does not always justify a business case to help other segments of the bank. Technology investment in East Africa is expensive and many banks use the same technology providers. The challenge for banks is to manage investment and build a customised product suite that differentiates them from their competitors that are using the same system.

An expansive branch structure is still required in this part of the world and banks have to look beyond growing their presence through traditional brick-and-mortar branches by introducing new channels and increasing the footprint of those channels. For example virtual branches where virtual tellers communicate with clients after hours. Shifting to alternatives such as agency banking has also enjoyed tremendous success in the region.

In order to build and transform East Africa’s financial services industry, institutions must attune to current market conditions and move toward customer-centricity. To enhance their value proposition to the customer, banks must look at the whole bank ecosystem to leverage mobile technology to integrate and reconcile their capabilities for a full view of the customer experience. Although technology is a must to compete in the marketplace, major technology implementations must be reconciled against business strategy and be robust enough to build on for future needs of the bank. Moving forward, retail banking and mobile banking will continue to be the focus of East Africa’s banks, as will their focus on reaching out to the unbanked and growing the financial services industry in the region.