Commercial banks have increased investment in innovation in the payments space in a move to grab a bigger share of the first growing financial markets segment now controlled by Safaricom’s M-pesa and startups.

The latest banking sector survey by Central Bank of Kenya (CBK) shows that 75 per cent of all banks have a dedicated team geared towards innovating new products with payments segment being the leading area of interest.

“About 87 per cent of commercial banks consider payments, clearing and settlement services as the most important operations and service areas to innovate in the short to medium term compared to 57 per cent of MFBs,” the survey shows.

Mobile apps

Most banks have mobile apps that move money from customer accounts to M-pesa but do not allow users to make payments seamlessly except for some bill payments hence limiting their role in the multibillion-dollar payment space.

Payments, clearing and settlement services was the functional area where most banks introduced an innovative product in the period January 1 to December 31, 2021, with 67 per cent of the banks innovating in this area compared to 59 per cent in 2020, the survey shows.

“Conversely, 86 per cent of Microfinance Banks (MFBs) consider credit, deposit and capital-raising service as the most important operations and service areas to innovate in the short to medium term strategy compared to 64 percent of commercial banks,” CBK said.

Innovate products

The local banking sector has been working on implementing Kenya Banking Sector Charter. 

The charter, which focuses on customer- centricity among other key pillars, has prompted institutions to innovate products that consider the customer first. All the institutions noted that ideas for product innovation originate from customer feedback which CBK says is aligned to the Charter.