Caught between interest rate controls and cost-saving, Kenyan big banks have taken up innovations in digital retail products in order to win consumers and boost earnings.

Consumers are expected to benefit from end-to-end digital account opening and better pricing. Globally, it is estimated that revenue from digital banking products and services will grow to almost half of banks’ revenue over the next five years. 

“Current banking trends have declared the death of the bank branch as transaction channel, as customers increasingly embrace self-service technology platforms that give them freedom, choice and control,” said James Mwangi, chief executive, Equity Bank Group. “We have reinvented ourselves as a digital bank to respond to their needs.”

Last week, the bank launched a set of digital products dubbed Eazzy Banking. They include Eazzy App, an interoperable payment platform and EazzyPay. Others are EazzyLoan, where an individual can get a loan of up to Ksh3 million ($30,000) instantly on the phone without guarantors and filling in forms; and Eazyy Chama, to help investment clubs and groups manage their joint finances and investments.

The lender joins KCB, Co-operative Bank and Commercial Bank of Africa in a fierce battle for the control of mobile-based micro-loans that allow customers to borrow as low as little as Ksh100 ($0.97) to be repaid within 30 days.

Mobile-based micro-loans

CBA has M-Shwari, KCB has M-Pesa loans and Co-operative Bank has introduced MCo-op Cash.

The Central Bank of Kenya had warned lenders against introducing “illegal” charges to borrowers with the intentions of shielding themselves from the new law. The capped lending rate currently stands at 14 per cent per annum.

The lenders therefore see consumption loans, which are mostly disbursed through mobile phones, as the next frontier for protecting profit margins. The banks are processing loans from as low as Ksh100 through mobile phones.

They are targeting income from fees and commissions charged on transactions and mobile-based micro-loans to boost revenues and protect market share.

Analysts said diminishing interest income from loans and the rise in the cost of deposits would push net interest margins into a free fall across the banking industry causing lenders to review their lending products.

READ: Kenyan banks exploit loophole in new interest law to protect income

Equitel mobile

Equity Bank has set a one-off processing fee of one per cent for its mobile-based Eazzy loans, and an excise duty of 10 per cent for the processing fee, in addition to an interest charge of 1.16 per cent per month. The bank is also offering its Equitel mobile money services free of charge across all its branches, with over 2.3 million SIM cards issued to date.

The bank said the growth in Equitel mobile loan disbursements accounts for 82 per cent of all loan disbursements compared with 18 per cent of over-the-counter branch loan disbursements.

KCB on the other hand has standardised fee charges for all unsecured loans either on digital platforms or physical application at 14 per cent per annum and a one-time negotiation fee of 2.5 per cent.

KCB group has disbursed about Ksh12 billion ($116.47 million) through its KCB M-Pesa platform since March last year, with 40 per cent of the loans being below Ksh500 ($4.85) and 57 per cent below Ksh1, 000 ($9.7).

Fee on loans

CBA charges a facilitation fee of 7.5 per cent on its 30-day M-Shwari loans while Cooperative Bank said it charges a flat rate of 1.16 per cent per month for its mobile-based loans with no processing fee.

Analysts at Bloomberg LP said the cap on interest rates would squeeze margins sending  shares of Kenyan banks to their lowest in years.