New law an incentive to reinvent banking

Central Bank of Kenya Governor Patrick Njoroge during a media briefing at the bank's offices on September 20, 2016. Banks face a myriad opportunities to redefine banking services, build greater operational efficiency and revamp the customer experience. PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • For the current and next quarter, many will be mulling over the devastating effect of the law capping interest rates on their profitability.
  • Operational excellence will take centre stage. This means that banks need to examine their operations to identify what can be done more efficiently at lower cost.

Banks over the years have been the envy of many as they reported supernormal profits.

However, September 14, 2016, the effective date of the new banking law, marked the end of this trend.

For the current and next quarter, many will be mulling over the devastating effect of the law capping interest rates on their profitability.

Hopefully a few will see the silver lining, an opportunity to redefine banking by putting the customer first, not just profits.

The reality is that banking in Kenya is dominated by the top five banks.

With limited price differentiation, smaller banks will have no choice but to either merge in order to gain scale or build real differentiation by offering something unique to a specific set of customers.

Banks face myriad opportunities to redefine banking services, build greater operational efficiency, and revamp the customer experience.

The first opportunity lies in differentiation at the customer level and segmentation that makes sense to the client.

Banks that will stand out will be those that place emphasis on value for the customer.

For instance, for a bank whose business model focuses on facilitating payments using the digital or mobile platforms, the electronic payment initiative presents one such possibility.

At the end of the day, banks need to grow their non-interest income innovatively.

Historically, branches have been positioned as the main service delivery channels.

It is now time for banks to re-evaluate the efficacy of the branch, its role in delivering customer value, and determine whether to shut down those with the least powerful value proposition or create additional value to drive traffic to the branches.

OPERATIONAL EXCELLENCE
At the same time, banks need to evaluate alternative channels for service and product delivery, for example online or mobile, which may present lower costs and a more fulfilling customer experience.

Most banks have a number of alternative channels and even a unit going by the same name.

Channel utilisation and performance is, however, a different story.

Perhaps M-Pesa has some lessons to offer. At inception, M-Pesa offered unique value — ease of use, affordability, and convenience.

It essentially sold itself. The marketing campaign created awareness about M-Pesa, but the real success came from satisfied customers converting others.

Banks need to innovate around channels so that they too can deliver such compelling value that customers become their “evangelists”.

Rethinking agency banking may be a starting point as it has already experienced success.

Operational excellence will take centre stage. This means that banks need to examine their operations to identify what can be done more efficiently at lower cost.

Operational excellence will also require banks to adopt best practices such as lean thinking, Six Sigma or Kaizen systems.

By streamlining internal operations to improve the customer experience at the agency and deliver more services through it, the need for branches will have been significantly reduced.

This will mean a complete review of the operations centred around agency banking and alternative channels.

BANKING MODEL
In Canada, an interest regulated regime, credit unions or savings cooperatives — better known as saccos locally — are significant players in the financial services space.

Saccos now have an opportunity to position themselves as formidable providers of affordable credit and financial solutions.

The big advantage they have over banks is that they are owned by the very individuals they serve and can, therefore, be perceived to work in the customer’s best interest.  

In the end, banks must rethink their banking model.

As Brett King in his book, Banking 3.0, says, “Banking is no longer somewhere you go, it’s something you do”.

Mr Watene is managing consultant, Altima Africa Ltd. [email protected].