As a fervent observer of the global banking sector, I have been mesmerised by Kenya’s technological innovation – a key factor powering the East African country’s continued GDP growth of 4.5-5.2% in 2024, according to the World Bank.
As a payments specialist and regional director of business development in Africa at Tietoevry, I have witnessed Kenya become a financial powerhouse on the continent. This has much to do with the introduction of M-Pesa in 2007 that has revolutionised payments for over 30 million Kenyans and counting.
While Kenya has made tremendous strides in its mobile banking, the banking sector innovation survey conducted in February 2024 by the country’s Central Bank of Kenya (CBK) shows an opportunity for commercial and microfinance banks (MFBs) to innovate their payment platforms.
In this piece, I will outline the opportunities Kenya has for taking its banking industry to the next level.
APIs, embedded finance and open banking
Kenya is a country that adopts technology fast. Application programming interfaces (APIs) have a high adoption rate of 84% by commercial banks and 64% by MFBs, making them 79% adopted by financial institutions in the country. What’s more, the CBK survey found that banks consider payments innovation the most critical area for immediate innovation (up 10% from 2022). Together, these are indisputable indicators, demonstrating that the country’s financial institutions are open to innovation, which is certain to lead to end user (AKA, the everyday person) benefits.
However, banks must be vigilant, as not just any API integration will do. The work that is currently being done with platforms such as Buni is a laudable first step, but has plenty of room to grow. The vast amount of open API platforms lack robustness, automation, and most importantly – solid monetization models for the banks themselves.
Globally speaking, adopting open banking is one of the best opportunities to achieve rapid development in the banking industry, and is generally underused. This is an opportunity for Kenya to superpower its digital transformation. This can be done in two ways:
- Regulator-led approach: a regulator, like the country’s Central Bank, can take leadership and develop its own open banking norms. While it would come with formalities, compliance, and added bureaucracy, the standardized format would make it easier for fintechs to integrate with multiple different banks and financial institutions.
- Wait-and-see approach: the industry could take a more granular, wait-and-see approach. Kenya is already moving and innovating rapidly, making a case for observing its progress without immediate regulatory intervention. However this doesn’t necessarily deliver on the promise of open API banking – to unify the experience for users and fintechs.
Regardless of the nation’s approach to open banking, one thing is clear. The time to invest is now. The market is ready, and the opportunities are there. More importantly, by investing in open API banking, you’re able to get ahead of the curve and set yourself apart from competitors. This early adopter advantage will be lost if and when the central bank defines open banking regulations.
Expected benefits of payments innovations and systems improvements
The topic of API banking, which we just looked at, is only one aspect of the banking sector’s opportunities for innovation and improvement. Another direction in which to think is updating payments systems to be more modular and flexible, making it easier to implement payments methods that reflect and deliver on modern consumer demand. Of course, there is also the aspect of digitization that is already underway, bringing the banking process – both for the consumer and the banking sector – into the digital environment.
When implemented in a deep and system-wide manner, payments innovations, updates, and improvements can yield more benefits to both banks and consumers than surface-level solutions. For example – 96% of financial institutions have a mobile banking app to facilitate bank transfers, but without taking advantage of building the app on a modular payments platform, it loses the capability to quickly adapt to ever-changing market needs.
Another expected benefit is that a robust, flexible, and API-friendly banking system will create an environment for the development of new, third-party financial services. This is of course a benefit for consumers, as they will have a wider variety of choice, improved services more tailored to their unique needs, and ultimately at a lower cost. Meanwhile for financial institutions, partnership with third-party services could support new client acquisition goals and serve as a new channel for distributing bank products.
And finally – a focus on digitalisation and robust infrastructure will also ensure increased consumer confidence in traditional banking, as it will ensure high availability of banking services per se. Through partnering with dependable technology providers, banks can ensure that their infrastructure can withstand heavy usage and guarantee round-the-clock availability and support.
Consumer service automation
Through analysing the CBK report, the most glaring opportunity is in consumer services offered by banks, such as card and credit services. Only 37% of institutions have entirely digitised their credit business processes. The CBK survey also indicates areas with the least digitization, such as card management, branch operations, and customer onboarding.
While in-person branch visits are not disappearing any time soon, there are on-site processes that can be automated to save time, resources, and reduce the likelihood of human error. With automation and an integrated backend service, this can also ease and improve the user experience for the population that prefers remote, mobile banking. Things like ordering a new card, freezing an account, transferring funds. These automations will not only improve the experience of the end-user, they will also reduce costs for banks.
The inability to quickly process loan applications, conduct credit appraisals, and disburse funds is a significant disadvantage. Automating systems is an opportunity to invest in the future, while also laying the foundation for solid relationships in traditional banking, making credit and other services more accessible and affordable for the mwananchi (average Kenyan).
An opportunity to lay the foundation for a future of financial leadership
“If you want to go fast, go alone; if you want to go far, go together.” This is well illustrated in the Kenyan economy. I have seen from the CBK survey that 79% of banks develop their products through partnerships and collaborations. Successful collaborations like Safaricom and NCBA bank to offer M-shwari, a savings and loan product, have increased access to credit for millions of Kenyans.
This spirit excites me to partner with the Kenyan people, solve challenges, and create new technologies for the future. To realize this potential, banks must embrace new technologies and thinking while regulators create a conducive environment for innovation and consumer protection.
The author, Edgars Bīberis, is Regional Director of Sales and Business Development at Tietoevry Banking – Middle East & Africa.
Leave a comment