Mobile Banking in Kenya is to be used by bank to lower costs and build new revenue streams in Kenyan banks.
This comes after the government put a limit on commercial lending rates, and may take several years of work for the banks to recover from the hit to profitability.
Currently banks are increasing their operations on mobile banking in Kenya.
The limit forced last month limited commercial rates to 400 basis points above the central bank’s main rate, now 10 percent.
Banks earlier charged 18 to 20 percent or more on loans, helping create some of the most money-making organizations in Africa.
The limit greatly reduced bank shares and senior managers have been rushing to fine-tune their tactic.
Most banks have focused on mobile banking in Kenya to increase business in the country with 46 million people, most of whom do not have a bank account.
“We must go digital and deliver products more cheaply,” said John Gachora, chief executive of mid-tier NIC Bank.
It will be hard to get similar earnings before the government introduced the limit.
The average return on equity for listed banks was 21 percent in 2015, the highest in Africa, and compared with 18 percent in South Africa and single digits for European and U.S. banks.
Nairobi-based Standard Investment Bank (SIB) expects returns to fall 16 to 18 percent after the cap, which included a floor for deposit rates.
Currently, just 2 percent of loans offered by Kenya’s 11 listed banks are issued via mobile banking in Kenya platforms.
This is a cheaper route that promises to reach more customers, but it will take time to make up losses from the more traditional loan market, SIB said.
“That is not a two-, three-year process but a longer process,” SIB bank analyst Francis Mwangi said.
Kenya has pioneered mobile banking in Kenya. Mobile operator Safaricom’s M-Pesa, launched in 2007, lets customers pay bills or transfer cash on the simplest handsets.
Safaricom also runs the M-Shwari banking platform with privately owned CBA Bank.
Such platforms cut staff and other expenses in the loan process, which means money is made even on loans of a few dollars.
“You may need one sales person and one person internally if you can digitise,” NIC’s Gachora said, saying a traditional loan process usually passed through three employees.
M-Shwari, launched in 2012, has 16 million customers and offers 70,000 loans a day – averaging 3,250 shillings ($32) each.
Top lenders, even with big branch networks, process 1,000 loans a day, although they are larger, bankers said.
KCB, Kenya’s biggest lender by assets, wants to grow its mobile banking in Kenya platform KCB MPesa.
The platform is operated by Safaricom and with additional saving and borrowing features over the more basic transactions app, so it has independence to grow.
KCB M-Pesa has 10 million customers, while KCB has 3 million traditional bank clients.
KCB wants mobile banking in Kenya to generate 50 to 60 percent of revenue in five years, from below 2 percent now.
“The customer lifestyle is already changing so we need to be playing in the space that our customers of the future are going,” KCB Chief Executive Joshua Oigara said.