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Tuesday 25 June 2019

THE FUTURE OF BANKING - PART ONE

By Kelvin Mkwawa, Seasoned Banker.
Slowing economic activity in Tanzania has impacted banking soundness indicators, which have shown some signs of weakening: non-performing loans (NPLs) are still a challenge, banks’ lending activities typically focus on a few key sectors which leads to high portfolio concentration risk, and a limited number of large corporates. Banks need to reinvent to remain competitive. In Tanzania, where the majority of the population lacks access to formal financial services (only 17% of the population are banked), mobile money has taken off and filled that gap left by banks. Mobile network operators are the dominant players in Tanzania’s banking ecosystem. There are more active mobile money agents than there are bank branches and ATMs in Tanzania.

Furthermore, technology companies (Fintechs) start-ups are channelling their focus on catering to the financially excluded Tanzanians who do not qualify for traditional financial services. In addition, with the number of investments on digital financial services from Fintechs and telecommunication companies, there is no doubt that the banking sector faces major disruption. So what will the banking industry look like in the next five or ten years? This is the question many bank CEO and shareholders should ask themselves. In this article, I will share what I think is the future of banking, and what banks need to do to not be left behind.

In my humble opinion, the future of the banking industry will depend on its ability to leverage the power of customer insights, advanced analytics and digital technology to provide services that help today’s tech-savvy customers manage their finances and better manage their daily lives. As technology advances in the next five to fifteen years, consumers will rely on their virtual assistants to do their banking and simplifying their day to day activities. Banks need to shift their mindset as well. You might argue that this doesn’t concern us (developing countries) as the state of advanced technology is at the earliest stage, but you can’t deny that what happens in developed markets has effects on our local markets as well. Hence banks should shift their focus from servicing the customers physically to investing in providing digital financing while also working on strengthening their security features and mechanisms to safeguard customer’s information hence improve consumer’s trust in digital finance.

Additionally, I believe the future of banking is mobile, inexpensive, and inclusive as physical cash will be used less and less as digital currency becomes the norm and true real-time money movement is adopted. Even though the brick and mortar model will not go away, I strongly believe that the future of banking is branchless banking. Banks should go beyond closing branches and improving online and mobile banking offerings and services. Instead, they need to move further into the daily lives of customers by providing services that add value before, during, and after the financial transaction. How can banks prepare for the future and ensure that they are not left behind? This week I will share some of the key components in the future banking ecosystem that banks need to have to prepare/build for the future.
  • Access to financial and non-financial data – In the above paragraph, I shared that banks need to incorporate themselves into the daily lives of customers by offering customized products and services that add value after the banking transactions. For a bank to be at the centre of a consumer’s life, it must be able to have all of the insights it has surrounding a consumer’s life. This insight can include financial insights, e-Commerce history, travel history, medical information, insurance and investment data, etc. Banks can only achieve this by being vigorous on the collection of customer data by investing in and developing systems that mine consumer data and partner with Fintechs to develop behavioural financial models. Through the data collected, banks will obtain a broader perspective of customer activity, transactions, mental state and emotions, allowing banks to become more relevant and contextual. 
Next week, I will share more key components in the future banking ecosystem that banks need to have to prepare/build for the future

Written by Kelvin Mkwawa, MBA
Seasoned Banker
Email address: Kelvin.e.mkwawa@gmail.com

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