Image from 2019 FinAccess Kenya report, which can be accessed here.
Among other trends, the 2019 FinAccess survey explored generational preferences in accessing financial services. Not surprisingly, the survey confirmed that youth show strong preference for technology driven access, including mobile banking. This preference, however, is deeper than superficial obsession with technology, and might be a symptom of the changing human relationships, the concepts of trust and social identity, which are all important in forecasting the future of traditional banking.
In the past decade, many African countries, including Kenya, experienced a giant technological leap, which made the internet and mobile technologies accessible to even most underserved groups. Access to the internet opened the doors to new services, new relationships (with people anywhere on the globe), new dreams, new opportunities, and so on. It also resulted in stronger than ever focus on an individual – individual’s needs and wants – and promoted an erosion of communal/group relationships. As per the same 2019 FinAccess report, savings-and-credit groups are experiencing reputational challenges largely because members commit fraud against other members, which is a strong signal of a decaying value of a group/group welfare vs. a welfare of an individual, or an individual household.
The older generation of financial service users grew up in the environment in which the community was a stable concept because they lived/worked in an average of 1 or 2 communities during a life span; belonging to the community was critical for survival and was valued higher than personal gains. Technology was an unknown; it was explored together with a group, in which all members shared a certain level of excitement (because of the technology’s novelty and convenience) and suspicion (because of the lack of skills to understand the tech). Hence, early users of mobile money and mobile banking preferred to rely on agents for all transactions, even the transactions that did not require an agent (see www.finclusion.org). As a member of the same community, agent was a trusted moderator between people and technology; the agent was expected to be on the people’s side at all times, advocate for people or, as a minimum, emphasize with the grievances of people who lost money because of the tech glitches. As one of the participants in the Financial Inclusion Insights study explained, “When an agent is helping you with a transaction and something goes wrong, you go back and yell at the agent or plead with them. When you make a transaction via mobile banking by yourself, who do you even yell at?”
The new generation grew up to be socially, economically and physically mobile:
• The rates of internal and external migration in Kenya are high;
• The prevalence of the informal economy means that people might be changing their occupations and associated professional circles frequently;
• Facebook, Instagram, WhatsApp and other social media platforms offer new social groups/communities on a daily basis.
The value of communal approval and associated peer pressure remain high even with the new generation. However, in the world of technology new communities can be easily found online, hence the commitment to a particular group among younger generation is not as strong as with the generation of their parents. The increase in fraud (digital and otherwise) is yet another symptom of the overall shift of focus away from community ties and communal welfare to the immediate needs and wants of an individual: If a community/group is replaceable, the effort should shift from maintaining communal relationships to maintaining personal welfare, even if at the expense of the community.
What does this have to do with the preference for traditional vs. mobile banking? The difference is in the “human touch” and how it’s perceived by the older and younger generations of service users. While for the older generation, the presence of a human in the transaction (an agent or a teller) was an important guarantee of the transaction’s success. This is no longer the case for youth, who grew up in the context of humans defrauding humans via bribery, extortion and fraud; youth are also comfortable with technology – it’s no longer an unknown that requires a human interpreter; youth live and work in the digital space. Mobile banking removes a human from the transaction or at least significantly reduce the role of a human; mobile technology releases control back to the users who is interacting with an impartial (or less partial than a human) algorithm. Hence, some youth might see the low “human touch” as a benefit – i.e., a guarantee of the transaction’s success.
What does all the above mean for traditional banking, or banking in general? Well, it does not mean that traditional banking is dead or even dying – after all, working youth with money are just about 2 in 5 of the working-age population, the remaining group still belong to the generation that might prefer a mix of a human-touch and technology. However, change is eminent and will have to impact the following areas:
• Technology improvement – technical glitches are not just a challenge for consumers who fear technology, they also result in a negative word-of-mouth and divert potential users of a product/service among youth. Family remains a priority in terms of a social group ties, hence, if a mother struggles with a bank – her child is unlikely to see it positively either.
• Consumer protection – Fraud, whether digitally enabled or committed by tellers/branch managers, has been out of control in the past 2 years. Kenyan banks still lag behind in implementing fraud detection and protection services developed/tested/used by financial institutions in the Global North, including off-the-shelf solutions.
• Cost savings that can be redirected to create tailored products/services – According to the 2019 FinAccess, about 17% of Kenyan adults are still excluded from the formal financial system while among the 83% who are included the use of financial services remains “shallow.” Those 17% who are excluded are likely to be people, who will have to first be introduced to traditional banking to create familiarity with the overall concept of formal financial services. Agent banking linked to a traditional bank might offer a range of opportunities with this group. At the same time, costs savings and ease of reaching youth via mobile banking provides opportunities for creating and testing a range of products/services tailored to different contextual and life-stage needs of youth (see my post on this here).
• Deepening bank’s involvement in youth lives – As exemplified by a range of successful corporate players, attracting and retaining young consumers requires understanding their lives outside the immediate bank transaction. Many organizations working with youth step outside their comfort zone and offer activities they’ve never thought applicable to their context – dance groups at health clinics being a great example. Surely, we do not expect banks to offer beauty services on their premises, but there are other activities that might attract youth to the branches, including financial literacy classes, soft-skill training, employment counseling, tech-development competitions, etc. It would be difficult to bring youth back to the branches for services they already use via an app; but it is possible to bring them to branches for unique/creative value-add services.
Traditional banking is not dead, there is a lot of work to be done by agents and branches before Kenya can transition to the digital-only economy. But traditional banking has to evolve and catch up with the needs of the new, tech savvy, mobile generation with limited loyalty towards people and agencies outside their immediate family circle.