Richard Njoroge,Partner and Financial Services Industry Leader – PwC Eastern
The banking sector globally has undergone significant changes in the last decade. The global economic crisis resulted in major regulatory reforms affecting the industry, but other trends including step changes in technological advancement, new sources of competition and changing customer needs have had a profound impact in shaping the sector.
COVID-19 is likely to have an even more substantial impact on the global economy overall, with transformative reverberations in the financial services sector yet to come. In East Africa, these and other trends are accelerating. Their trajectory helps to indicate what we can expect from the financial services industry over the next 10 years.
Big tech and digital banking;
For many industries, COVID-19 has proven to be a catalyst accelerating the shift from ‘brick and
mortar’ to technology-enabled, remote service delivery. The focus now is on productivity, which
requires ongoing investment in technology and the workforce.
Organizations that had made investments in their technology infrastructure and developed digital channels and capabilities prior to the pandemic have fared much better and are now more competitive and agile as a result. Leading institutions will continue to digitize their customer-interaction models, shift to cloud-based, modern architecture and strengthen digital sales, operations and service models. Focusing on these priorities will put even more pressure on any remaining legacy infrastructure, support functions and branch infrastructure.
In East Africa, digitization and innovation were already widely embraced by financial services organizations. The pandemic accelerated this shift, but many customers already expected cashless transactions and remote access to services. Bigtech and Fintech have emerged either as standalone players or providing complementary services, such as remittance, payments, and digital lending. In many cases, banks and technology companies have partnered to create mutually beneficial technology solutions that often supplement the customer experience.
Going forward, I foresee even greater collaboration between banks and third parties to drive innovation
– and more scrutiny by the regulator.Consequently, East Africa’s financial services industry is in no danger of being taken over by technology companies. Banks have earned their reputations as trusted advisors, and banking remains a critical facilitator of local and global economies and commerce.
Shifting customer trends.In some ways, the expectations that customers had a decade ago are very different from todays. The current client-driven shift to digital platforms and service delivery models is likely to inspire successive waves of disruption for financial services. And yet trust remains the
underlying factor; with a wider and evolving set of products and services to choose from, banking clients will place an even higher premium on trust in choosing a service provider.
They also value speed and affordability. With a youthful, rapidly urbanizing and increasingly educated population, Africa’s banking customers have certain expectations around efficiency and accessibility. They expect to open accounts, apply for loans, transact, and access different services on their smartphones.
East Africa, and Kenya in particular, has made headline progress over many years in
implementing mobile money. That trend has accelerated elsewhere in Africa and globally during
the pandemic. Electronic payment platforms linked to digital currencies have only just begun to
gain acceptance at an institutional level in some countries, but it is possible that we are on the
cusp of major global disruption.
A bank that does not respond to these and other customer-driven and customer-centric trends
will soon become irrelevant.
There are very good reasons for the banking industry’s regulatory framework, which governs
services as well as operations. Banks of the future can anticipate an acceleration in the
implementation of current and planned regulatory measures.
We can anticipate changes in the regulatory regime based on international considerations like
sanctions, anti-money laundering and know-you-customer imperatives as well as LIBOR
replacement/reference rate reform, amongst others. The implementation of the latest Basel
conventions in measuring capital and risk, tighter liquidity requirements and stress testing may
challenge traditional business models and institutions. None of these developments are
unheard-of; what is uncertain is the timing and the method and sequence of implementation.
Digital disruption poses an interesting challenge for regulators in East Africa, who must strike a
balance between protecting financial system stability and the security of consumers, with supporting an innovative ecosystem. The extent to which that balance is maintained – or not –
can create another layer of uncertainty.
Mergers and acquisition;
It is not a new observation that the banking sector in East Africa is overcrowded with too many
players, particularly small players that struggle with margins, liquidity, meeting capital
requirements or attracting deposits at a reasonable cost. As the economies in the East Africa
region become more integrated, we are likely to see the emergence and growth of more
We have witnessed several mergers and acquisitions in recent years, and that trend is likely to
continue. Consolidation will be driven by business imperatives, not just regulatory action. Scale
remains a key consideration for banks; the larger ones will look to scale through organic growth
or acquisitions. Some small banks may struggle to make the investments in innovation,
technology, and compliance processes that are required to remain competitive.
Blockchain technology, cryptocurrency, and digital currency;
Blockchain is a system of recording transaction in distributed ledgers and is the technology that
supports cryptocurrencies. Regulators are wary of the use of cryptocurrency as it is unregulated
and can be used for money laundering and terrorism financing. In Kenya, the CBK has
cautioned the public against using cryptocurrency and reiterated that it is not legal tender.
Some regulators are piloting official, central bank digital currencies (CBDC). CBDC is legal
tender in electronic form backed by the issuing authority. Unlike cryptocurrencies, CBDC is not
based on blockchain technology but is issued by a specific authority.
Nigeria became the first country in Africa to launch CBDC officially. The Central Bank of Kenya
has recently issued a discussion paper on CBDC, seeking views on potential use of CBDC I
Kenya. It is possible that in years to come central bank digital currencies will be used alongside
existing currencies in East Africa.
Some commentators have questioned the future of banks, in the face of emerging competition
from non-bank players and evolving customer needs. I am convinced that banks have a future,
and they are here to stay. Banks do have some significant challenges, however, to remain
relevant. First and foremost, they need to respond to consumer expectations and deliver
technologies, innovations and experiences proactively. The bank of the future in East Africa will
be larger, more integrated and technology enabled and make full use of Artificial Intelligence
and Big Data to provide a wider range of more personalized services delivered through digital-
As the industry changes and adapts, trust will remain the foundation of financial services. The
banks of the future will continuously earn that trust amongst their customers, regulators and
other stakeholders by delivering value and sustained outcomes.
Richard Njoroge is a Partner and Financial Services Industry Leader – PwC Eastern