Kenya’s KCB not scared of Big Tech, partners with Huawei
Coronavirus clearly accelerates the trend to digitalisation, worldwide.
How then did it affect a country ahead of the digital pack, such as Kenya, which since 2007 has been zapping cash around the country with phone-to-phone money transfer, M-Pesa? “I think we survived because if migrating our transactions to the digital channels where we already had success”, says Oigara. “More than 98% of our transactions are already out of our premises, and we saw a fourfold increase in digital transactions since last March”.
It has allowed the bank to execute debt relief remotely. “Nearly 35% of our loans have been rescheduled, on average for 6 months, and that is in addition to the almost $1bn in the last 11 months to cushion customers through the impact of the pandemic”, says Oigara. He is pessimistic about the survival of some businesses in the tourism and aviation sector, but Covid relief is no longer being extended, and “we believe that 90% of our customers will return to form by the end of 2021”.
Kenyan banks ahead of the pack
The digital advance of Kenyan banks has certainly given them a solid defensive posture. But it is on offence that their strength shows through.
KCB purchased two banks in the last six months, the Banque Populaire du Rwanda and the African Banking Corporation in Tanzania, from the Atlas Mara Group. Meanwhile, KCB’s biggest domestic competitor, Equity Bank, purchased a bank in the Democratic Republic of Congo (DRC), the BCDC.
Did it sting to see a rival steal a march in the DRC, one of the great opportunities of the 21st century?
“I don’t think it is a question of who goes first, it’s a question of what kind of asset do you get and are you able to integrate it and build the service levels for clients”, says Oigara. “Our ambitions have not been shaken. The market is still untapped in the region, we need more banks [from Kenya] to take up a presence]”. He believes Ethiopia will be a key opportunity, with all the difficulties it may present today.
But while the CEO of Kenya’s twin banking behemoths may both see the potential of the DRC, they differ on a fundamental point; the posture toward the arrival of BigTech in the region, in the form of Facebook’s future fintech projects, or China’s Ant Group, formerly Alipay, an affiliate of Jack Ma’s Alibaba.
For Equity Bank’s James Mwangi, Big Tech are an existential threat to banks on the continent, fearing their economies of scale: “The unit cost for them may be negligible, and I may never keep up. They don’t require a [banking] licence. They are not regulated. We are creating a tilted playing field”, says Mwangi.
Oigara does not deny that they are arriving; Kenya’s own technology architecture for example, from undersea cables, to mobile phone equipment, to mobile phone handsets and software, is dominated by Chinese players for example.
He believes the greater problem is the non-digital payment space – “95% of our transactions in Kenya are still cash, that’s the battle in my view, not the 5%”, says Oigara. “If you can move the needle to even 20-30% cash you can generate significant billions of dollars”.
“Those Big Tech companies see an opportunity, a sweet spot of integrating their global platforms with local payment channels, and thats where the partnership comes in”.
Oigara does admit that arrival of Big Tech companies will hit African banks still dependent on ‘bricks and mortar’ physical banking networks. But KCB is prepared, given its KCB M-Pesa product in partnership with Kenyan telecoms leader Safaricom, which before the pandemic “was doing $2bn of lending a year”, says Oigara.
They also have co-developed a lending product with Safaricom, called Fuliza, allowing customers to borrow and settle goods on a mobile wallet. “That one has been very successful, nearly 10 million clients on that platform since 2015”, says Oigara.
Making friends with Huawei
Last year, KCB started working with Huawei, the Chinese telecoms giant, building their own platform for payments and settlements, which will be called Vooma – a Swahili name for speed – and launches in March, “owned as a revenue share between us and Huawei”, says Oigara. “We will look at the others, the Google or the Apples coming in, when they are here”.
Rather than try to fight global competition, Oigara thinks owning the relationship with the customer is essential. “The banks that are able to build that early relationship are those which will see success”.
Helping customers buy from small merchants is a key part of that strategy. “In Kenya alone we have seven million small businesses; less than a quarter of a million are connected into a digital payment service”, says Oigara, who wants to bring that number up to a million by the end of the year.
Huawei is providing the infrastructure to make it happen, KCB will bring the clients the digital services they need. This focus on the client’s digital financial ecosystem is a mindset change made possible because of the great disruption that M-Pesa has already brought to the Kenyan banking sector, believes Oigara.
“So if I’m living here in Nairobi and I’m going to Mombasa and I need to use the train, I’m going to the SGR [Standard Gauge Railway], how do I settle that SGR from my account, I have a wallet for it. If I go into Mombasa and I need to pay my hotel, is the hotel in my merchants, if I want to buy some ice cream from a guy who is already hawking it on the street, can I pay him?”, says Oigara. “That’s what we see as integrating banking into the day-to-day lives of our clients, and I think because we have a partnership today with Safaricom that gives us an edge, that’s in Kenya, but across the region this is the biggest challenge we’ll see.”
Hiccups along the way
Problems remain, especially on the skills side. While he receives 100 applicants for every graduate job available, on the technology, developer, digital security and analytics side, “that’s a bigger challenge”, he notes. “That talent is scarce, we don’t have a solution for that and yet it’s a very critical skill we need today”.
Opportunities, too. The introduction of the African Continental Free Trade Area (AfCFTA) will boost continental operators. With Kenya being the natural centre of a regional trading hub, and 250m people in East Africa alone, “we are in the nerve centre of operationalising the AfCFTA”, says Oigara.