A majority of Kenyan banks have now turned to smartphone applications and mobile banking systems for lending to their customers as the rise of digital lenders eats into the market that was traditionally preserved for them.
The latest banking sector innovation survey by the Central Bank of Kenya (CBK) reveals that 74 percent of commercial banks in the country have now digitized their lending services, up from only 44 percent in 2022.
Credit, deposit, and capital-raising services have overtaken payments, clearing, and settlement as the most digitized function in banks, an indication of the increased importance Kenyan lenders have attached to it as digital lenders eat into their market.
“Credit, deposit, and capital raising services were the functional areas where most banks introduced an innovative product in the period January 1 - December 31, 2023,” CBK said in the survey report published on Friday.
This comes at a time when the banking sector regulator allowed even more digital lenders to operate in the Kenyan market, giving commercial banks a run for their money in the retail lending business.
Last year, CBK licensed 10 more digital lenders, bringing up the total number of digital credit providers in the country to 32, and an additional 19 got the regulator’s nod this year, intensifying competition in the business of lending to small-time borrowers.
Currently, there are 480 digital lending businesses in the pipeline, awaiting CBK's nod, and may soon enter the market intensifying the competition in the business. This seems to have unsettled banks, which have now also taken their lending digital.
Digitisation has become increasingly important for Kenyan banks over the last year as the majority of them actively engaged in and invested in innovative technologies to improve service delivery to their customers.
According to the report, the number of banks that leverage financial technologies to digitize and modernise their operations increased by 19 percent from 60 percent in 2022 to 79 percent currently.
Currently, only two percent of lenders do not actively leverage digital technologies to streamline their services but use fintech startups and third-party firms to offer digital solutions to their customer base.
Banks that embrace digital technologies through collaborating or partnering with fintech startups also dropped from 25 percent in 2022, to 9 percent last year, an indication that banks are increasingly opting to go digital.
After credit and payment services, the third most digitised functionality for Kenyan banks is now customer support services, followed by incidental business activities like bancassurance, and the least is investment management.
