Brett King, author of Breaking Banks wondered; “you probably never thought of Uber as an acquirer of small business bank accounts, but if you’re an Uber driver and Uber can give you a debit card that enables you to get paid – then why would you go to a bank to open an account?”
That banking is at a point of inflection is not a question anymore; it is a statement of fact. It’s the first Monday of 2017, at 4pm, a rush hour in downtown Quartier Mateus, Kigali’s business heartbeat; five burly young men are loading merchandise on a truck outside a whole sale shop.
Next to the track is a man loudly speaking on phone; he appeared to be the owner of the shop.
“Chief, loading of the goods is almost done. But the truck will not leave the city until you have sent money on my mobile phone. Please send the money to expedite the process,” said the man, in the local language Kinyarwanda.
A few minutes later, the truck drove off, an indication that payment had been made…by mobile money as earlier demanded by the supplier. The truck, it turned out, was headed to the Eastern Province and the goods belonged to a local trader who owns a retail shop in Rwamagana town. But that is not the point.
A transaction had just been made without a bank playing an intermediary role between the buyer and seller; with mobile money, bank transfers or cheques are rendered redundant.
Findings by the research firm, Gartner, projected, last year, that global mobile transaction volumes and value would average a 42 percent annual growth by end 2016 with a market forecast worth $617 billion and 448 million users.
A survey by the Gates Foundation, World Bank and Gallup World Poll found that of the world’s top 20 countries for mobile money usage, 15 of them are in Africa with East Africa’s Kenya accounting for majority of the world’s mobile money transactions.
In Rwanda and elsewhere, mobile money is breaking banks. As mobile phone penetration deepens, mobile money users have also surged, especially in rural areas where banks had previously shunned opening branches due to infrastructural limitations.
It perhaps explains why, today, there are more mobile money users in rural areas than cities. In Kenya, for instance, rural areas reportedly account for 56 percent of the country’s active mobile money account holders; 55 percent in Tanzania and 61 percent in Rwanda.
In an attempt to tap into this phenomenon, banks have invested in agents who help the locals to liquidate the digital credit on their mobile accounts to make cash transactions. And through products like ‘Push-Pull’ customers can transfer their mobile money into a bank account.
But what happens if two people with mobile money accounts do business? It means money will simply be moved digitally, from one phone to another as was the case between the Mateus wholesaler and the Rwamagana retailer.
MTN Rwanda recently threw the spanner in the works with a new service, tap& pay, using one’s phone; this will render bank issued cards almost redundant. And the numbers are surging.
A recent industry report said that MTN-Rwanda is currently averaging 7 million monthly transactions, worth Rwf70 billion ($86 million); all this is money outside the banking core system.
Embracing technology a must
What then is the role of banks and other financial institutions in an era of disruptive digital payment technologies? It is a question bankers have been chewing on, as food for thought throughout 2016 and will continue preoccupying them through 2017.
In a nutshell, analysts agree that for banks, it is a future that holds big wins or rapid failure, depending on the choices they make today. So, are Rwandan banks making the right choices to position their respective institutions for a new era of banking?
Dr. Diane Karusisi is the CEO of Bank of Kigali, Rwanda’s largest commercial lender; since taking over in January 2016, she has sent out a strong signal of her intentions to digitalise the bank while emphasising on customer care.
“Let me paraphrase Marcus Shingles’ quote here; as bankers, we must Uber ourselves before we get Kodaked, this means if we don’t embrace digital transformation, we will simply disappear,” Dr. Karusisi said.
To walk that talk, BK recently created a specialised department of Electronic Payments and Digital Channels and appointed a Chief Information Technology Officer to its executive management to superintend over the bank’s journey towards full digital transformation.
It is a trend that can be seen across Rwanda’s banking sector with the likes of Cogebank, Eco Bank, I&M and BPR all doing a thing or two to revitalise their digital banking infrastructure.
Bankers today seem to appreciate that their competition may no longer be the bank next door; instead, it is that new Fintech start-up; ‘these are the new elephants in the banking hall, scaring away growth in new accounts.’
Jamie Dimon, CEO of Chase Bank couldn’t have put it any better when he noted; “there are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking.”
Indeed, recent statistics indicate that global investment in Fintech has surged from a couple of billion dollars in 2012 to an incredible $12.5billion in 2015.
Experts note that ‘financial technology is chomping on the fringes’ of banking in that it is causing unprecedented disruption in banks’ core services such as payments and lending. Again it goes back to what banks are doing about it today to shape tomorrow.
But they say, ‘if you can’t beat them, join them.’ To avoid chopping on its business, Bank of Kigali has ventured into having its own ‘in-house’ Fintech specialising firm in form of BK TecHouse, a new subsidiary.
In doing so, experts say Bank of Kigali has booked itself a seat in the next generation and being the industry leader, it is also setting the trend for other players in the market.
“Investing in financial technology solutions is the right thing to do now because the consequences of not acting now are damning,” said Regis Rugemanshuro BK TecHouse Managing Director.
Rugemanshuro’s observation is shared by other industry experts including Francisco González, Chairman and CEO of BBVA, a multinational Spanish banking group. He said, “up to half of the world’s banks will disappear or ‘kodacked’ through the cracks opened up by digital disruption of the industry.”
While banking as a service is not about to disappear, what is likely to varnish are things such as branches and their large banking halls; it is a trend already noticeable with the likes of newly rebranded BPR, for instance, scaling down on its formerly expansive branch network.
Globally, in the US, bank branches declined to their lowest in 2016, since 2005, as organisations trimmed their operational costs while investing in mobile/digital services moved from being fourth priority for banks in 2014 to first priority in 2015.
That is supported by study findings by Ovum, a market-leading research and consulting business focused on converging IT, telecoms and media markets; between 2014 and 2015, total IT budgets in the retail banking industry increased by 4.3 percent equivalent to $131 billion.
Findings by FMSI Teller Line Study indicate that teller aided transactions have plummeted from about 12000 in 1992 to just about 6500 transactions in 2015, among credit unions and community banks.
One consumer survey asked respondents what they would consider as the single most important factor that would influence their choice for a bank in 2017; 67 percent said it would be ‘a simple and easy digital banking experience’ while 33 percent said ‘good customer care from tellers.’
Considering that branches still have a couple of decades before they go extinct, Rwandan banks could choose to run a hybrid system that offers their clients great digital experience and heartwarming customer care.
It is a win-win offer especially considering that technology is fast changing the service preferences of bank customers.
Another survey found that 51 percent of bank customers preferred to interact with their banks on the laptop, 30 percent on a mobile device while only 16 percent said they preferred a branch.
With that, we can forget the days when the question was, “where do you bank?’’ In the era of digital disruption, the new question is; “How do you bank?’’
So, as they set out to attain their 2017 growth targets, bankers must keep in mind the words of Jack Welch, Chairman and CEO of General Electric; “if the rate of change on the outside exceeds the rate of change on the inside, the end is near.”