Online money revolution – why banks had to conform

By David Wanjala Change is inevitable. That is a given. The world is here due to the fact that movers and shakers of world’s influential democracies embraced change. But it is the rapid technological advancement; especially the revolutionary growth of the Internet that has disrupted convention in our times in a manner that has forced all and sundry to either conform or perish. In our December 2015 Issue, we focused on how social media has invaded and given the mainstream a run for their money. “Shape up or ship out, the social media’s message to the mainstream,” we said. The same rings true in the financial sector. The only difference between these two industries is; the financial sector, unlike the media, has been fast to adopt. The Internet and its resultant versatile technologies, more so the Smartphone, has raided and whipped, in fact, frog marched conventional financial institutions including banks from their comfort zones. Banks, over the ears, have been the most divisionary institutions in the world, expanding the gap between the downtrodden and the elite. Celebrated Kenya’s first woman banker, Mary Okello relieves with nostalgia how banks in the 1960s segregated against women. “You could not be advanced credit. You could not open an account as a woman, neither could you withdraw money from the bank without being accompanied by your husband,” she says in an interview we published sometime back. Mary Okello and a few others fought this segregation against women by banks from within the system. And over the years, there came the breakthrough. But the biggest discrimination by banks was by class. For many years, bank doors were places where the majority of the people saw by coincidence, as they passed by. It was, by design, a place for the elite of the society, the very top. It was not until around 2005 when Equity Bank took the finance industry by storm by simplifying and indeed demystifying banking procedures that doors of all other banks opened to the masses. The archaic, indeed punitive rules like having up to Sh10 000 as minimum account balance was done away with by the likes of Barclays and Standard banks. This was revolutionary. Isn’t it joyful that today you can withdraw from as little as Sh200 from your bank account at the ATM? With the kind of competition and innovation spearheaded by Equity Bank, even the attitude of bank tellers who served customers as if they were doing them a favour changed with time. There is more courtesy in the banking system lately. 2015 has been the year when banks gave some serious thought to their customers. Many city banking halls have invested a little of their hard earned money into a system that allows customers to sit down as they wait for the next available teller for service. Halleluiah, no more incidents of customers collapsing on queues, as with time, all banking halls across the city, and eventually, the country will embrace the technology. Real change in the banking industry has however, been happening on the technological front, especially after the advent of Safaricom’s M-pesa. It must be noted that, just like the mainstream media resisted digital migration, so did the banks resist M-pesa. However, rather than rest on their laurels like the mainstream media in the digital war, the banks joined the online money transfer platform immediately they lost the battle to Safaricom. Every bank positioned itself to leverage M-pesa and other emerging online money transfer platforms by the mobile service providers including Orange Money and Airtel Money to ensure they are not left behind. Those, like Equity Bank, whose partnership with M-pesa never came to fruition, invested in their own platform, Equitel. Over the recent past, every bank has afforded their customers the ability to transact, be it withdraw, deposit, transfer, confirm balance, from the comfort of their sitting rooms, office or even on the go, courtesy of mobile banking. The furious advancement in mobile telephony industry – devices and apps has come in handy to midwife the revolution in the banking sector. Much as the banking sector tried to run the mile with the technology, it was not fast enough to keep with the pace. It has lagged behind in various sectors, continuing to discriminate against the masses. One major area in which banks slumbered was the loan sector. For many years, bank loans were a reserve of pay slip holders, edging out millions of Kenyans who earned a living from informal engagements. You could still be formally engaged but if your employer did not pay you through a bank, you could not qualify for a bank loan. The bottom-line is that you could not grow yourself. It is difficult, for instance, to save enough from your pay to, say, buy a house or even a piece of land. These kinds of investments need not only ready cash, but also the discipline that comes with loan repayment. If you earned about Sh60, 000, you could safe all your life to get enough to be able to buy a quarter piece of land in, say, Utawala, Nairobi worth Sh1.4 million. That is before you even think of building. Loans are the only key to the bondage of poverty, yet banks, for many years saw no need to rope in the masses. Besides, there comes a time even the working class, at whatever level, would need a quick loan to fix say, school fee arrears for self, children or siblings. Or to pay rent when salary delays. Under such circumstances, a quick loan would suffice. But banks looked the other way. No wonder unregulated Shylocks have for many years thrived at workplaces and in the estates, with devastating results. Shylocks charge in excess of 30% every 30 days on the principle. I know of a friend who took Sh50, 000 for a sibling’s fee arrears and was almost auctioned. Since he could not raise the total Sh65, 000 at a go, he kept redeeming the loan every month at Sh15, 000 for two years. By the time he cleared the loan, he had expended in excess of Sh480, 000 including penalties. Never mind that to eventually pay the Sh65, 000 in lump sum, he took another loan, but from a workmate. SACCOs saw this gap and so they mushroomed in early 2000 and until banks wake up, they will continue thriving. With 1% per month interest, or 12% per annum, one hopes SACCOS will spread enough to eliminate Shylocks and raise banks from the slumber True, banks have in the recent years softened their rules regarding offering loans to their customers. They have pitched tents along streets, in the estates and villages and hired comedians to help them market various loan bouquets. Too little, one may say, too late. Still, as banks concentrated in growing conventional loan books, something fresh was cooking; online loaning was taking form. It was pioneered by M-pesa in 2012 in partnership with Commercial Bank of Africa (CBA) in the name of M-shuari. It enabled people to save, earn interest and borrow money using their mobile phones. It allowed customers to save as little as Sh1 and accrue annual interest at between 2 – 5% on savings, as well as receive short-term loans of between Sh100 – Sh20 000, payable in 30 days at 7.5% interest. To underscore the argument that commercial banks had been resting on their laurels for far too long and that massive opportunities, exploited and abused by Shylocks passed by, CBA overtook Equity Bank as the lender with the highest number of loan accounts within a year, pushed by the growing number of subscribers to its mobile money platform. The bank’s loan accounts grew to 897, 000 from 89, 000 at the time of M-shuari launch. Equity had closed 2013 with 840, 000. CBA’s managing director for Kenya, Jeremy Ngunze, attributed the growth to reduction of the cost of access to banking services. “The truth of the matter is that conventional banks have not moved as fast as the needs of the people of this country have moved. That is where there has been a mismatch. You find the needs and the requirements and the wants of Kenyans are not being met (by the banks). So then people have to come and leverage on technology to answer to those needs,” says Dennis Makori, CEO Onfon Group that is credited with coming up with the fast online Sacco in Kenya. Between 2012 when M-shuari launched and 2014 when the other commercial banks saw the light, many nonbanking entities had taken to online lending to fill the vast gap that M-shuari could not manage to service adequately. Until now, there have been Branch, Mkopo Rahisi, Saida, just to mention a few and they have had a field day, charging interests of between 10% and 15% per month. They, according to Mr Makori, use the data on a person’s profile on M-pesa. They analyse the profile, deposits, withdrawals, and balances and with the analytics, come up with a credit score from which they give one a maximum loan limit, which they keep growing from your interaction with them – how you repay your loans. “They have simply leveraged on technology.  There is a new thing in this world called analytics. Some of them use your facebook data. They analyse your facebook profile to find out who you are, who your friends are, what you post, what you watch and from that they form an idea of who you are. They form a credit score from which they are able to dispatch a loan to you. That is where the world is going,” he says. It was not until mid 2014, that most commercial banks realized it was only on the online platform that the war of growing loan books can be won. And so Co-op Bank launched Mco-op Cash in August 2014, with a one off 7% fee for secured loans of between Sh100 and Sh200, 000 repayable in 30 days. In March 2015, Kenya Commercial Bank launched KCB-M-pesa account to offer loans with repayment period ranging from one month to six months. The bank offers customers with credit facility of up to Sh1 million from Sh50, with 30day loan at 6% per month, 90day loan at 5% per month and 180day loan at 4% per month. The account registered 604, 000 subscribers in three weeks translating to an average of 40, 000 sign-ups in a day. In July 2015, Equity Bank launched Equitel after overcoming the many challenges pitying it against Safaricom and the regulator. The bank hailed the platform as a new mobile payment and banking platform for its customers –that officially brings to the fore the convergence between mobile and banking services in Kenya. By September, hardly three months after launching, the bank had disbursed to the tune of Sh4 billion in loans on their online platform.

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