Equity Bank: Banking on Mobile
How Kenya’s Equity Bank is leveraging digital footprints to grow its double-bottom line.
When was the last time you walked into a bank? For me, it was when I first opened my account at Bank of America over ten years ago.
The rise of consumers鈥� digital footprints is pushing banks to redefine their value proposition and operating model. Banks traditionally offered a value proposition of high levels of customer service delivered via a brick and mortar, relationship-banking operating model. Banks able to form the best relationship with their customers were the ones offering the most value to their customers. However, with consumption shifting towards digital channels, we are seeing a major transition in banking value proposition and operating model:聽Banking is 鈥渘o longer somewhere you go, but something you do鈥�.[1]
In emerging markets large banks have typically focused on corporate finance rather than small and rural business lending. This has been driven by high operating expenses associated with underwriting and servicing these loans and a lack of traditional credit-risk information in providing in these segment.[2] However, the growing penetration of digital technologies such as mobile and smart phones banks is lowering banks鈥� cost of accessing these consumers.
Equity Bank in Kenya
Equity Bank has 鈥渕ore than 9聽million customers, making it the largest bank in terms聽of customer base in Africa and having nearly half of bank accounts in Kenya.鈥�[3] Their strategy is to become an 鈥渁ll-inclusive financial services provider with a growing pan-African footprint鈥� through delivering high volume and low margin growth[4]. Equity Bank鈥檚 annual reports from the early 2000s (see for example, ) consistently emphasize growth in staff, branches, and ATMs with growth in customers and assets as the model through which they would achieve this[5]; however, the bank in 2015 shows a 4% growth in its customer base alongside a 7.4% decrease in its staff[6], indicating a shift towards more efficient growth.
To catalyze this leaner growth, the bank will leverage Kenya鈥檚 impressive 90% mobile phone penetration and 44% smart phone penetration.[7]. They are聽shifting away from the traditional relationship banking value proposition of service in order to instead focus on delivering value through convenience and accessibility.
A key manifestation of this was Equity Bank’s聽July 2015 launch of Equitel, a聽mobile virtual network operator operating on Airtel鈥檚 network enabling banking transactions for customers. Chief executive James Mwangi underlined the value of Equitel, 鈥淭he biggest problem with accessing a bank is not bank charges, it is the cost of access. I will have to go 70km to where the bank is; I will have to pay public transport; I will have to spend the whole day to get to the bank鈥�.If we really want the masses and low-income people to join banking, then we should make financial products very affordable, and that is the value proposition that we are making to the market.鈥�[8] Equitel offers the lowest mobile banking charges out of all players in the market[9] and now the majority of the Equity鈥檚 loans are disbursed via mobile phones via their short-term, low interest Eazzyloan scheme[10].
While the growth of Equitel will help Equity serve a greater number of underbanked customers at a lower cost, there are two聽additional steps it should take to ensure that they are able to deliver on their promise of affordability and convenience.
First, high聽smart phone penetration enables Equity to access a treasure trove of mobile behavioral data and to therefore聽, price in the risk of default, and shift their customer base to a less risky clientele. This聽data and risk-based pricing would bolster Equity’s long-term聽ability to offer lower price products in the future.
Second, Equity should leverage聽mobile phone data to more effectively market their products to customers. Partnering with mobile data analytics such as Cignifi might help them segment their customers and push appropriate products to them. Whereas in the past a customer may have needed to commute many miles to get to the nearest bank, Equity now has the data and ability to聽predict and deliver what customers want directly to their fingertips.
Lastly,聽in its transition to providing increased affordability and convenience through mobile schemes, it is important to note that Equity is making a bet against its existing brick and mortar operations.聽As shown earlier, branch staff are being let go in tandem with the growth of mobile banking. This has the potential to be a tumultuous transition with lots of PR risk聽if Equity pushes forward too quickly, and they must therefore be sure to manage internal expectations and find alternative employment opportunities for their staff.
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[1] Wings, Heinz, and Heinz Beno虉lken. Banking 3.0 Trends, Bru虉che, Gescha虉ftsmodelle, Spielregeln. Herzogenrath: Shaker Media, 2013. Print.
[2] In spite of these challenges, many large banks do have large portfolios of small business and rural loans; however, these portfolios are often purchased from smaller niche financial institutions that perform the loan underwriting and servicing, and they are usually purchased as a result of regulatory requirements for serving BOP customers.
[3] Equity Bank Limited. . 2016. Accessed November 17, 2016.
[4] Equity Bank Limited. . 2016. Accessed November 17, 2016.
[5] Equity Bank Limited. 鈥淓quity Bank Annual Report 2005鈥�. . March 1, 2006. Accessed November 17, 2016.
[6] Equity Bank Limited. 鈥淓quity Bank Annual Report 2015鈥�. www.equitybankgroup.com/index.php/files/download/917. March 1, 2016. Accessed November 17, 2016.
[7] Moses Kemibaro. 鈥淜enya鈥檚 Latest 2016 Mobile & Internet Statistics鈥�. . October 1, 2016. Accessed November 17, 2016.
[8] 聽Zoe Flood. 鈥�Kenya’s mobile innovation brings digital money closer鈥�.://www.bbc.com/news/business-28142515. July 4, 2014. Accessed November 18, 2016.
[9] Mpesa Charges. 鈥�Equity Bank鈥檚 Equitel Kenya, Thin SIM and Mobile Banking in Kenya.鈥� Copyright 2015-2016. . Accessed November 18, 2016.
[10] ANJUM H. ASODIA. 鈥淢obile phones take over Commercial banks鈥� loans sector in Kenya鈥�. . Accessed November 18, 2016.
Very interesting read. I think a big reason why Equity has been able to transition towards mobile banking, is because of the high penetration and the comfort of using of mobile money in Kenya. More than 75% of Kenya’s adult population is banked via traditional bank or mobile money accounts such as M-PESA. This is significantly above the global average of 62%.The World Bank credits this high financial inclusion to the success of mobile money [1]. I wonder whether Equity bank would have been successful if there wasn’t already so much comfort with using mobile money in Kenya. It makes me wonder, whether the launch of Equitel was to ensure their relevance and not lose all their grass route transactions to the likes of M-PESA which could potentially leverage is reach to expand into microlending and small scale loans.
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Hi Cookie Monster, great post and nice to see someone posting about a retail banking success in Kenya outside of M-Pesa. Do you think the Central Bank of Kenya should be doing more to drive volumes through products put out by actual banks, such as Equity, rather than a teleco such as Safaricom (given that Safaricom is not regulated be the Central Bank)?