Driving Financial Inclusion Through Innovation in Kenya

The increasing development of Kenya’s banking sector has allowed many people to have access to savings, especially those without prior access to financial services. This change has come primarily from new technologies, such as mobile phones and ATM machines, that have facilitated access to these services. In this rapidly changing environment, YouthSave’s partner, Kenya Post Office Savings Bank (Postbank), has had to work arduously to remain relevant to customers in a financial sector fundamentally different than the one a few years ago.

The number of bank branches in Kenya has exploded in the last decade, with much of this change coming from new institutions entering the scene. The most noted among the new entrants, M-PESA, has radically changed the Kenyan financial sector by simplifying the way that Kenyans transfer money. New regulations have allowed several non-bank microfinance institutions to transform into regulated financial providers.

Additionally, several commercial banks have undertaken an approach that focuses in reaching low-income consumers in society. All of these recent developments have left an entirely different financial landscape in Kenya.

In order to survive in this competitive environment, Postbank had to utilize new technologies and adjust the organizational culture to stimulate competition across branches in different regions and promote collaboration within branches. For a transformative change to occur, Postbank had to adopt an entirely new business model that identified existing business processes, recognized areas that could improve, and built upon them a new structure that allowed the bank to introduce a new ATM card delivery system.

Only a few years ago, Postbank still relied on passbooks to record the transactions of their customers. As other banks in Kenya began to modernize their systems, Postbank had to make an important assessment about the best course of action to put the bank at the same level as its competitors. A report published by Financial Sector Deepening Trust Kenya (FSD) last month, reviewed Postbank’s new business model and its emphasis on the development of a new system that effectively replaced passbooks with ATM cards and PIN numbers. Among the report’s other highlights, it underscores Postbank’s forte in delivering mass-market low-cost financial products due to its reduced operating costs, and consequently, its potential to lead financial inclusion efforts in Kenya.

Postbank’s efforts to extend financial inclusion in Kenya are by no means limited to adults; they also include providing youth with saving opportunities as a priority. Last April, Postbank, in partnership with YouthSave, launched a pilot for a savings product for young people called "SMATA." Postbank’s goal is to attract people between 12-18 years of age with this product and provide them with an opportunity to save. Illustrating the bank’s new business model, "SMATA" customers can use a debit card to deposit and withdraw the funds in their accounts.

In a review of the pilot, KIPPRA, YouthSave’s research partner in Kenya, Save the Children, and Postbank surveyed "SMATA" customers about the product. Many of the respondents saw the account as a vehicle that would help them and their parents, among other things, to save for school fees. Nevertheless, some of these youth reported limited access to bank branches as a barrier to using the account by noting the inconvenient branch locations, which were far away from school and home.

Despite the increasing number of providers of financial services, a large number of adults still claim to save at home, or through many other informal saving schemes. FSD estimates that around 8 million adults in Kenya still do not have access to banking services. Addressing this problem will require more innovative solutions from financial institutions, such as those employed by Postbank.

As Postbank prepares to take the “SMATA” savings account to scale, making the product easy to access will be very important for financial inclusion. To make their account more accessible, Postbank has allowed youth to use the bank’s other POS access points – namely Postbank agents and mobile phone banking – but so far for deposits only.

FSD recognizes many opportunities for Postbank to become one of the main drivers of financial inclusion in Kenya. First, the bank has the potential to target the underserved market segment of low-income earners by offering low-cost financial products to them. Second, the bank’s continuous work to improve its agent model puts the bank in a position to test new approaches that strengthen the agency delivery model and increase the opportunity to recruit new customers in remote areas.

Postbank’s success in extending its network has implications for all of its customers, whether they are young customers using “SMATA” or low-income adults using other financial products. The bank’s potential to significantly impact financial inclusion efforts will depend on the progress the bank makes towards finding ways to decrease operation costs by introducing more efficient methods of operation, extending accessibility by establishing partnerships with mobile service providers, and many other innovations.