Foreign banks tweak operating models in battle for East African retail market

Wednesday May 17 2023

A Stanbic Kenya women's day event in Nairobi on March 2, 2022. The lender, through the Dare to Aspire Dare to Achieve (Dada) platform, has committed Ksh20 billion ($145.93 million) to finance women. PHOTO | NMG


Foreign banks have been roped into the battle for the control of East Africa’s retail market, which has been tipped to be the new frontier for money minting by lenders seeking to bolster earnings and protect market share.

Foreign multinational banking giants that previously thrived on doing business with large corporates and high net worth individual clients are gradually tweaking their operating models in favour of the once-shunned and neglected small businesses and individual customers.

This is a market that has seen KCB and Equity bank rise to over Ksh1 trillion ($7.3 billion) worth buoyed by expanding customer numbers and loan books.

The model that has boosted non-funded incomes for local banks revolves around ‘high volume, low margin’ operations targeting the low income segment of the population.

A study by McKinsey&Company in 2018 predicted that the mass market would be the next growth frontier for banks in Africa.

But how fast Africa’s retail banking penetration increases in the years ahead will depend on how bold banks are in innovating, said the study titled “Roaring to life: Growth and innovation in African retail banking.”


Read: CRDB Bank partners with TPA in digital port payments to boost regional trade

According to the study 70 percent of the growth in Africa’s retail banking revenue pools to 2025 will come from the middle segments, defined as individuals with annual income between $6,000 and $36,000.


The mass market – individuals earning less than $6,000 per annum –will account for just 13 percent of this revenue-pool growth, but it is the fastest-growing segment and one to watch.

“In our base-case scenario, retail banking revenues across the continent will grow at a compound annual rate of 8.5 percent between 2017 and 2022. If more banks emulate the winners and roll out low-cost models and innovative partnerships, growth will be even faster.”

Absa, Standard Chartered Bank and Stanbic Bank are rapidly adopting the new growth model by diversifying their corporate businesses with retail ones.

Standard Chartered Bank (Kenya) disclosed through its 2022 annual report that part of its ambitions by 2025 is to be among top retail banks in the region by growing its ‘mass presence.’

“We intend to help our clients prosper and deliver everyday banking solutions by integrating our services into their digital lives,” the bank said.

“We are growing the share of our mass retail client business income from new innovative business models. New digital solutions, strategic partnerships and advanced analytics will be instrumental to our business, enabling us to significantly increase our reach and relevance to serve clients in a meaningful way, supporting our stand of lifting participation.”

On the other hand Absa said it aims to grow faster by investing in its core retail and business bank, supported by digital and strategic partnerships.

“Evolving customer expectations and behaviour require greater understanding and appreciation of their needs and requirements,” the bank said.

Read: EAC to wait longer for monetary union

Stanbic bank, a member of the Standard Bank of South Africa, strengthened its retail banking business by refocusing attention on financing SMEs, including low-income housing projects and businesses owned by women and youth to reducing overreliance on stockbroking and bancassurance.

This is after its shareholders and investment analysts raised concerns over the lender’s increasing pressure on net interest margins and demanded a strategic plan to grow the retail franchise, client base and total revenues.

The lender, through the Dare to Aspire Dare to Achieve (Dada) platform, has committed Ksh20 billion ($145.93 million) to finance women.

Mass banks

Other global players eying the regional retail banking market include Nigeria’s Access Bank Plc and Egyptian Commercial International Bank.

James Mwangi, Equity Group CEO, said last year that the next generation of banks could be much more transactional but those that engage in inclusive mass banking will be the most successful.

“Mass banks will provide inclusive services, with proper customer segmentation and delivering specific services to these segments rather than focusing exclusively on a niche within a segment,” he said.

In 2020, Access Bank Plc, Nigeria’s largest retail bank, more than doubled its investment in its Rwandan subsidiary after acquiring Kenya’s Transnational Bank with focus on the region’s retail market.

On the other hand, Egypt’s largest private sector bank by assets Commercial International Bank (CIB) fully acquired Kenyan Mayfair Bank, its initial buyout in the African continent in 2020 viewing the deal as a springboard to the rest of the African countries and particularly East Africa.