Digital Transformation

The impact and future of digital transformation in the Kenyan financial sector

The Kenyan banking sector has consistently delivered good returns over the last few years for its shareholders despite the normal business challenges that face any sector. The sector has faced many challenges e.g. regulatory (caps on loan rates), political (prolonged election cycles) etc. but the one I will focus on is digital disruption brought about by increased mobile and internet penetration.

To understand this blog better it would be useful to review some of the key drivers of digital disruption as illustrated below

Mobile Penetration82.6% of the population88.7%
Mobile Subscription33.6 Million subscribers40.2Million subscribers
Internet Penetration[1]71,7% of the population100.2% of the population
Number of Retail Bank Customers28.4Million41.2Million
Number of FinTech’s038
Mobile Money users27.1Million28.07 Million

Similar to most other markets banks in Kenya were hitherto very lethargic in the way they offered services to their customers with fixed banking hours and limited channels for their customers to engage the bank. The early adopters of digital solutions realised their could attract new customers and engage their existing customers better via mobile phones especially when mobile penetration started rising in 2012-2013 but  this was mainly accelerated by the advent of mobile money which has been a runaway success In Kenya especially  MPESA (mobile money) product by Safaricom (the leading telecom in Kenya) which was and continues to be successful in financial inclusion. Most customers who were using mobile money started a new trend where they kept their money in their mobile wallets rather than in their bank accounts thus denying traditional banks their income.

The early adopters like by offering banking services over the phone using USSD technology, this was because in 2012 they were still more feature phones than smartphones therefore USSD lead to better access to customers. This later evolved to the use of first generation mobile apps (as shown figure 1) but a lot of banks clients who don’t have smartphones still use USSD to access services and I think this will still be in use for a while probably another 5 years. And to further bolster their digital presence in the market Equity bank was the first bank in the East Africa region to acquire a telecom license and provide services mainly to its 10 million retail customers as an MVNO (Mobile Virtual Network Operator). Their first mover advantage allowed them to really grow from a small bank to the number two bank in the country beating all the Multinational banks in the market that were still using traditional channels with their customers.

All retail banks in Kenya now have all the forms of digital tools illustrated in diagram 1 but some retail banks have gone a step further and set up strategic partnerships with mobile companies to offer new innovative services. One such bank is Commercial Bank of Africa (CBA) which partnered with Safaricom (leading telco) to offer a bank account called (M-Shwari), the M-Shwari product has been very successful and has propelled CBA from a small retail bank with under a million retail customers to 10 million[i]retail customers as of 2016 in a period of 4 years. Most of the new customers are new clients who have never owned a bank account and who perform all their banking process on their mobiles.

The successes of the banking players above lead to the entry of nearly 38  FinTech’s into the Kenya financial market[ii]though they are mainly 3-4 major FinTech’s, most of the fintech companies are standalone companies ( not part of the banks ) who mainly focus on two products for now which are mobile loans (similar to M-shwari above) and  payment solutions ( payments of utilities etc… all aggregated in one application or website ). The uptake of these products has been very good as they solve the market demand for (i) simple, instant bill payment solutions with various service providers all in one aggregated app (ii) instant short loan/credit requests by a large unbanked population who own phones. Some of the FinTech’s have niche products which focus on crowdfunding for various social causes.

All these changes brought about by digital disruption in the financial sector has had both positive and negative effects on the market as follows in table 1:

Table 1

Positive effectsNegative effects
1.     Faster access to banking services

2.     Greater financial inclusion in the country from having in 2014 (28.4Million bank accounts) to in 2016 (41.2Million bank accounts) nearly a 50% increase.[1]

3.     New entrants like fintech which brought innovative products.

4.     Easier access of mobile loans/credits even though they are not cheap.

5.     Growth of mobile bank agencies creating employment

1.     Huge retrenchments in the banking sector.

2.     Bank branch closures which lead to lose of income for property owners, clients may also have to travel abit further if they need in-bank services.

Now that banks have embraced the use of digital platforms to engage their clients and FinTech’s are also making an impact on the market I foresee the following evolution of the market:

  1. The mobile apps used by banks will be the centre of banking and will get more advanced and customer centric e.g. one would use their app to contact customer service and be able to sort out a lot of customer queries even using bots and this may reduce their contact centre costs. The apps currently have basic features and must evolve.
  2. Banks may acquire FinTech’s but keep them as a separate entity and brand so that they continue to serve and attract customers in those niche sectors.
  3. They will be consolidation in the Fintech space so that we probably end up with 2-3 players.
  4. Currently most banks rely on ones mobile money history to give out their short term mobile loans but overtime they will start to use artificial intelligence to build models that allow them to offer loans based on other information apart from mobile money credit history.

Figure 1 – Digital platforms evolution in the Kenyan banking sector.


[1]All internet and mobile data information sourced from (communications authority of Kenya)

[1]Data from the www.centralbank.go.keannual report 2014 and 2016

[i]Data from the www.centralbank.go.keannual report 2016

[ii]Data from

[1]Data from the www.centralbank.go.keannual report 2016

[1]Data from

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