Lenders adopt more ‘smart branches’ in growing drive for digitalisation

Monday September 18 2023

Man working in blurry office with double exposure of HUD infographic interface. PHOTO | SHUTTERSTOCK


Kenyan banks are moving toward the “smart branch” banking model to shore up deposits and strengthen their capacity to attract and retain customers following a failed attempt to replace the conventional brick-and-mortar branch through digitalisation.

The smart branch model involves a combination of physical and digital banking channels to drive up transactions and build stronger customer relations, which is core to attracting and retaining customers in a competitive environment.

Bankers say that while technology has altered the way banks do business, and brought cost savings through automation of processes, physical branches are still important to the sustainability of the industry.

“There was never an expectation that banks would close branches and transfer to digital channels, hence expecting the branch networks to shrink. The expectation was that the rate of growth of branch network was going to slow down, with the advent of digitalisation and digital channels. And we have seen this happen,” said Habil Olaka, Kenya Bankers Association (KBA) chief executive.

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“We shall therefore continue seeking new branches opened to facilitate access to more consumers but at a much slower pace than it was before especially pre-Covid.”


According to Forbes, bank branches are in a new era. With most customers able to do simple banking transactions on their phones, branches are now redefining their role in consumer banking to complement — rather than compete with — the digital channel.

But while digitalisation has made customers more self-reliant, it has also made it more difficult for banks to differentiate themselves. This has called for bank managers to focus on face-to-face interaction to win and retain customers.

“NCBA has been consistent that we are opening branches even when others were saying otherwise,” said John Gachora, chief executive, NCBA Group Plc

“Our strategy was based on research where customers view branches as a reason to trust. We use them more as sales points while most daily services have moved online. Kenyan customers still want to know there is a physical place to go should things not work,” he added.

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Branch closures

Central Bank of Kenya data shows that the Kenyan banking industry closed down 23 branches in 2017, the first branch closure in 15 years, partly attributed to the adoption of alternative delivery channels such as mobile banking, internet banking and agency banking.

Between 2017-2019, a total of 51 branches were shut down.

However, 12 branches were opened in 2020 and 16 new branches opened in 2022 as some banks expanded into emerging and new growth areas.

Face-to-face interaction still plays an important role in the bank-customer relationship and despite the cost savings that came with replacing physical banking channels with digital platforms, banks reckon they sacrificed building strong customer relationships in the process, a development that is adversely impacting their clientele.

“Branches provide reach physically and a point of engagement for enquires, such as account opening and advisory. They are an important part of the value proposition banks offer customers and are important, therefore, for deposit mobilisation as they also house sales teams,” said a chief executive of a regional bank who asked not to be named.

“Digital on the other hand makes the customer experience easier from idea to action; for instance, opening an account digitally and accessing loans digitally.”

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According to Forbes, creation of the smart branch, focused on providing financial guidance alongside services, is expected to play a key role in helping banks acquire and retain customers while weathering the economic slowdown.

The channel combines the efficiency of technology with in-person financial guidance, giving way to omnichannel banking.

According to Andrea Zirilli, managing director of global investment firm Strategic Value Partners (SVP) & Global, banks will have to adapt products and services to offer an omnichannel consumer experience, integrating physical and digital channels to meet the needs of a blended clientele.

“In short, digital banking will not replace the brick-and-mortar branch networks, though they are already shrinking,” says Zirilli.

“Indeed, within this omnichannel approach there is one constant: the focus will still be on the client who will be able to choose the channel best suited to their individual needs.”