Daily transaction services of Kenyan banks face competition from Fintechs

As the Kenyan economy becomes increasingly digitalised, big banks operating in the country are set to be challenged by up and coming Fintechs, primarily in the domain of daily transactions and commercial activity, according to new analysis from global management consultancy McKinsey & Company. 

Much like the rest of Africa, Kenya’s economy is experiencing rapid growth in the digital space. Revenues from Kenya’s digital services segment are expected to surpass the $5 billion mark by as early as 2022, a period during which the number of internet connections across Africa are expected to surpass the 1 billion mark.

According to McKinsey & Company, the banking sector in the country is among those that will be most directly affected by this trend. On the one hand, banks will remain comfortable and unchallenged in their advisory and professional services as well as in their “business-to-business” services.

However, when it comes to daily borrowing, lending and other commercial transactions, a wave of smaller Fintechs are expected to attract some business away from the larger corporations. One reason for this is the relatively low costs involved in borrowing from these smaller players.

In addition, smaller Fintechs are subject to fewer regulatory restrictions, which makes the process of borrowing from them much simpler due to fewer minimum requirements. McKinsey recommends that banks modernise their operations to tackle this issue.

“In devising their strategies, banks could focus on owning the next generation payments landscape (for example contactless, QR, e-commerce etc) and building an ecosystem of value added services to recapture share in everyday commerce and transactions,” explains Partner at the firm Tawanda Sibanda.

“Banks could also move first to serve the long-tail of underserved small and medium-sized enterprises (SMEs) in the market through entirely digital offerings,” he added. This strategy would help tackle the challenge posed by financial services platforms such as M-Pesa that are growing in influence.