How Coronavirus is catalysing race for e-banking

The COVID-19 pandemic looks likely to be the catalyst accelerating the reduction of physical branch networks in the banking industry, as lenders eye more uptake of digital services.

The pandemic comes at a time when lenders had undertaken new measures in 2019 by cutting costs and restructuring their operations in favour of shift to online banking while focusing on increase in market share and tapping into regional markets.

The last Bank Supervision Annual Report 2018 by the Central Bank of Kenya (CBK), shows the number of bank branches decreased from 1,518 in 2017 to 1,505 in 2018. This means 13 branches were closed.

Nairobi County registered the highest decrease with the number of physical banking outlets dropping by 11 branches.

About 10 counties registered an increase of 12 bank branches while nine counties registered a decrease of 25 bank branches. In 28 counties there was no change in bank branches.

The CBK attributed the decrease to the adoption of alternative delivery channels such as mobile, internet and agency banking.

KPMG’s associate director, Transformation Martin Kimani, said the pandemic could potentially be a significant accelerator of trends that were already starting to gather.

“Although banks haven’t had to close all their branches given the essential nature of their services, bank operations have nevertheless felt the impact of the pandemic in most countries,” Mr Kimani said in an interview with Digital Business.

“Staff shortages and the safety of employees, combined with less commerce occurring in general, have meant that around a 25 per cent of bank branches have shut during the outbreak in many countries and territories. Of the remaining 75 percent, many are open on reduced hours and with reduced staff.”

Even as the bank branches are expected to remain open as the crisis passes, Mr Kimani doubts whether the situation will be the same in the long run. “The fact is that banks around the world have generally been reducing the size of their branch networks in recent years. While there remain some branch openings, overall the net effect has been a reduction. This might therefore mean that banks have already reached peak of branches.”

The pandemic has seen customer demand for branches that had fallen prior to the crisis, drop further as banking behaviour changes and consumers move increasingly to online and mobile channels.

In releasing annual financial results in March this year, Equity Bank reported 97 per cent transactions in 2019 done outside branch network through digital platforms and agency banking.

KCB Bank also registered 98 percent transactions carried on the digital channels as at the end of the year, up from 95 percent in second quarter. “In this time of pandemic when movement is so restricted for so many, there is no doubt that remote banking will be seeing huge levels of growth,” she added.

Ivan Mbowa, general manager for Tala East Africa, a digital lender, has predicted that in 2022 banks would have lost at least 33 percent of the industry branch network that existed in 2019.

Mr Mbowa has attributed this to declining profits over the adverse effects of the pandemic and competition from fintech exacerbated by the changing customer financial needs.

This article was first published in Business Daily