“If banks don’t embrace cultural change, they will be overtaken by tech companies.” So, Sir David Walker, ex-chairman of Barclays and Morgan Stanley told The Banker magazine. He might as well have been speaking about Saccos, MFI’s, telcos’ and financial technology (fintechs) too. Yes, fintechs. With the rapid changes in the financial sector, how players in it sell themselves is on shifting sands.
In the not too distant future, it is possible that banks will not be as formidable a force as they currently are. Make no mistake though; banking itself will be even stronger, more pervasive and prevalent. As Bill Gates observed in 1997, “The world needs banking, but the world doesn’t need banks.” If you thought disruption in the financial sector died with M-PESA, you have another think coming. That was just the beginning. Turbulence is brewing under what seems like calm waters-locally and globally.
The problem is technology
You see, M-PESA was never the problem-technology was (and is). As powerful, pervasive and popular as it is, M-PESA is only an example of the power of technology in the financial space. And speaking of technology, things are moving very fast. Initially there was the Internet, then the ubiquitous cell ‘phone, followed by M-Pesa and now the smart phone. Na bado! (more is coming).
According to The Communications Authority of Kenya 2015/2016 Q1 Sector Statistics Report, mobile subscriptions grew to 37.8 million during the quarter. Further, mobile penetration, grew an impressive 88.1% and internet subscriptions hit 21.6 million. Meaning a penetration of 74.2% was achieved during the same period. This aside, it is estimated that in 5 years, there will be 50 billion connected devices. With mobile being the primary access to internet. And that 80% of the world population will have access to a mobile phone, 60% of whom will be through a smart phone or low cost tablet. With Kenya known globally as the Digital Finance Success (DFS) story, your guess is as good as mine what this means. That is, for business in general (ahem ahem, traditional taxis) and the financial landscape in particular.
Ignoring technology: Saccos
Saccos are an example of what ignoring technology can do. Based on a FSD (Financial Sector Deepening) Report, Savings for the Poor in Kenya, unlike banks and MFI’s who embraced technology, Saccos have taken a plunge, re financial penetration. And whereas products like KCB M-PESA and M-shwari (both which have revolutionized borrowing) are to be commended, they are not a panacea to weathering the brewing storm. Banks are bogged down with a conservative, risk-averse culture. Technology is the exact opposite: liberal and encouraging ‘failing fast’. Failing fast is a term used by Royal Bank of Canada CEO Dave McKay who goes on to tell the Globe and Mail that “trial and error isn’t in the banks’ DNA. Because we have big, complex organizations with integrated systems (and are heavily regulated-brackets mine)… it takes a while to build something that works.”
Enforcement of new rules needed
To be competitive, he believes new rules must be enforced. Such as killing misguided projects before they become too bloated. Why? Because, tech firms are comparatively lithe and they want in. Which is why Jamie Dimon, chief executive officer of J.P. Morgan Chase & Co., America’s biggest bank, said this. “Leaders of the digital revolution, all want to eat our lunch.” Proof of this can be found in Financial Services Now. This is a financial services lobby that seeks to steer Washington policy as new technologies emerge. It comprises of the ‘oligopoly’ of the tech space i.e. Apple, Amazon, Google, PayPal and Intuit
Low barriers to entry
Now then. Fintechs may themselves be overtaken by technology. This is because of 4 factors. One is low barriers to entry, and two, rapidly diminishing power of suppliers. In addition, is intense industry rivalry and continual threats of substitution. “Fintech start-ups are already quietly and rapidly crawling inside banks ( Saccos and MFI’s) like armies of ants, often unnoticed, through small holes at the corners of old rickety doors and windows, weakening hinges” (LinkedIn. Brackets mine).
What does the foregoing mean? That turbulent times still lay ahead and players in the financial sphere should keep a pulse on how they are selling themselves.
You may also want to read, “Are Kenyan banks too big to fail?”
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