Will retail banking survive the digital wave?


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Chroniclers

Will retail banking survive the digital wave?


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Summary

  • Trend analysis, a tool used to assess what has happened in the past, gives us an idea of ​​what will happen in the future banking system. This clearly shows that digitization is resetting virtually every industry.
  • The growth of e-commerce over the past five years, accelerated by Covid-19, has had an overwhelming effect on the retail industry.
  • A McKinsey Global Banking 2021 annual review shows that the pandemic has had dire financial effects on the global banking industry.

Over the past 10 years, Kenya’s financial services sector has experienced disruption. This was accelerated by the Covid-19 pandemic, which forced customers who once resisted online banking to adopt digital banking apps as the new default.

Trend analysis, a tool used to assess what has happened in the past, gives us an idea of ​​what will happen in the future banking system. This clearly shows that digitization is resetting virtually every industry.

For example, during the Covid-19 pandemic, the financial services industry saw the rise of banking systems powered by artificial intelligence (AI), digital lending apps, and cryptocurrencies trying to fill the gap. financing in particular with micro, small and medium enterprises (MSME). This is the era of FinTechs.

The growth of e-commerce over the past five years, accelerated by Covid-19, has had an overwhelming effect on the retail industry.

As a result, some big brands have fallen and others are faltering.

This clearly shows that key industries like banking may not withstand the raging digital onslaught, both locally and internationally, as more and more clients now appreciate how convenient it is to make transactions. digital banking rather than going to physical branches.

A McKinsey Global Banking 2021 annual review shows that the pandemic has had dire financial effects on the global banking industry.

Digital banking has accelerated. The use of cash has declined, savings have grown, telecommuting has become a way of working, and the environment and sustainability are now a priority for customers and regulators.

McKinsey’s review noted that as banks responded to challenges, a trend of slow-motion investing went viral. And investors were drawn to a new generation of financial services companies that pioneered the use of technology to better serve customers.

Companies like Amazon, Apple, Google, Netflix and Spotify have taken existing services and turned them into digital experiences that are now integrated into the daily lives of customers.

Some also offer credit cards, and the majority offer point-of-sale (POS) consumer credit choices. Alibaba and Tencent, both based in China, offer even more services.

Fintech and big technological breakthroughs in banking are no longer just a threat. They are real. And banks are replicating this model in financial services, turning products into functionality to meet customer needs and retain them.

However, the existing underlying elements are still there. Like the current account, the personal loan or the POS. But they’re less visible, an integral part of a digital experience that goes beyond banking.

Locally, where banks have discriminated against their own customers, confidence in fintechs is even higher than in advanced countries.

Cryptos, with their decentralized finance, have also made inroads into MSMEs that banks have ignored for years.

The disruption in the banking industry reminds us of what Bill Gates said in 1994 – that the bank is necessary, but the banks are not.

True to his words, some banks have ceased to be necessary. The international trend captured in McKinsey Review reflects the local performance of banks, where few have reported high returns as many laggards struggled to make profits. It was not by chance that this happened.

The same sentiments are expressed in the words of James Mwangi, chief executive of Equity Bank, as he officiated during the announcement of the bank’s 2021 financial results.

He said he was no longer running a bank but rather a tech company with a thriving Fintech.

Mr. Mwangi attributed the outstanding performance to Equitel, the group’s mobile banking platform, which took 15% of the total Kenya mobile money transfer market in terms of value and transaction volume in its first year. full year of operation.

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