Pushed out of banking halls by lenders keen to cut operation costs,
customers are falling victim to scams by crooks also reaping from
technology. PHOTO | FILE | NATION MEDIA GROUP
A caller rushes through his words but then pauses to gauge their
effect on the unknown person on the other end. Like a snake charmer, he
relies on sound to bamboozle the potential victim.
The
idea is to keep the receiver on the line long enough to buy his story,
give him confidence by mentioning he is sitting at the bank head office,
then trick him into providing the mobile banking password and other
details before an account is cleaned in seconds.
They
are called “Kamiti boys”. Brushed aside as some jailbirds dialling
random numbers in the rising trend of mobile banking fraud, they are a
growing army of fraudsters taking advantage of Kenya’s meteoric adoption
of digital banking.
And it has been meteoric. Besides
athletics and coffee, Kenya’s most touted international credential is
the adoption of M-Pesa the trailblazing mobile money service by
Safaricom that is mentioned in all tech conferences globally and even
central bankers.
“Overall, there has been a significant
growth in digital account ownership, uptake and usage over the last
three years. FinAccess 2019 shows that 87 percent of households in Kenya
have access to a digital account and 78 percent are active account
owners,” reads a study by Francis Gwer, Paul Gubbins, Edoardo Totolo and
Jack Odero of Financial Sector Deepening (FSD).
Behind
these impressive numbers is a deliberate push by banks to make going to
the branch so expensive that the only option will be to use your mobile
phone.
A branch customer will pay an average of Sh14,970 in annual
transaction costs while the digital client will incur an average of
Sh5,620 being just a third of the costs.
However in its
wake, it may be exposing customers to fraudsters, and punishing older
people and vulnerable customers for using bank branches.
“Banks
have shifted to technology to reduce their cost. One way to force you
to get out of brick and mortar is to raise the charges of face-to-face
services. Going by our culture, we love face-to-face interaction, hence
we must be forced,” said Prof XN Iraki, an economist at the University
of Nairobi.
Banks spent billions of shillings buying
technology platforms and building lending applications as the race to
become digital heated up.
To adjust to these
investments, they fired workers as a cost-cutting measure, especially
post-2016 when the rate cap was introduced capping how much money could
be made on loan interests.
Money could only be made
through fees and commissions and mobile offered a lucrative route to
draw customers while avoiding the watchful eye of the regulator.
“Third
party costs, especially those associated with digital transactions,
were not disclosed as required by the prudential guidelines. Notably,
one bank charged Sh18 for SMS receipts for RTGS transactions that was
debited from the account,” FSD said.
But as the good professor said, Kenyans are creatures of habit and would not walk willingly with the bankers to their slaughter.
A
survey commissioned by bankers lobby group Kenya Bankers Association
during the last quarter of 2018, showed that 80 percent of customers
still value the traditional model of customer service despite the rising
uptake of technology by lenders to enhance service delivery.
Research
firm Infotrak also carried out a survey, which showed that two in every
five banked Kenyans prefer using physical branch outlets and 66
percent, regardless of the age, are likely to opt for them in future is
an indicator that outlets are not going anywhere soon.
FinAccess
2019 showed that a large proportion of bank customers (61 percent) use
branches for transactions. At the same time 73 percent of non-users of
mobile money cited preferences as their main barrier for uptake.
The
customers had spoken, they would still walk into bank branches inasmuch
as they were more likely to get two tellers at counters that were built
for 20.
In 1996, Kenya’s one million bank customers
were being served by 16,673 bank tellers but by last year, 31,889 had to
divide their attention between 55.2 million clients.
Banks
that had fired 5,034 of their employees since 2014 were now faced with
overwhelming dissatisfied customers at the branches.
They
resorted to pushing balance scorecards on their staffers which in turn
only led to fightback by unions, which mobilised their collective
bargaining agreements to fight the pressure.
Then
lenders discovered an easier way to shove customers out of the banking
halls. Rather than deny them toilets or make them wait for ages in
snaking queues, why not just tax them like cigarette smokers.
According
to the FSD study, banks were charging up to Sh1,056 for
over-the-counter (OTC) withdrawals while RTGS transfers done at the
branch were the most expensive and significantly higher than those done
over the mobile banking app and through internet banking.
In
2018, when the government doubled excise duty on fees charged by banks
from 10 percent to 20 percent, financiers used this excuse to drive up
the cost of withdrawing cash over the counter by up to 50 percent.
“Expectedly, a bank that has invested in establishing a digital infrastructure will encourage its use,” FSD said.
“During
the mystery shopper phase, some banks indicated that they have high
charges for OTC withdrawals to discourage their customers from going to
the branch and instead use the ATM and other digital channels. However,
the data shows that these banks still charge relatively higher for
withdrawals done over digital channels,” the report read.
And
the trick worked; FSD noted that usage of traditional bank accounts has
dropped from 32 percent in 2016 to 30 percent in 2019. Cost is often
the most visible constraint to access and usage, but it is not the only
one.
Banks are reporting impressive numbers for
instance, in 2018, 93 percent of loans disbursed by Equity Bank and 97
percent of cash-based transactions were through digital channels.
Kenya
Commercial Bank (KCB) reported a steady increase in non-branch
transactions from 64 percent in 2016 to 88 percent in 2018.
In
2018, the bank’s transactions over mobile channels accounted for 62.1
percent of the total value of transactions compared to 16.2 percent at
the branch, with the two recording a 20 percent increase and a 13
percent decline from 2017 levels respectively.
The
bankers extolled the virtues of digital banking as cost saving, noting
that a customer would save an average of Sh9,350 in annual transaction
costs by choosing to transact digitally instead of going to the branch.
But
this was just half the truth, a digital borrower tends to make more
transactions than those who go to the branch. They also tend to be more
erratic and would withdraw money for consumption and entertainment with
no limits of branch opening hours.
It is through these repetitive transactions that banks hope to glean an extra shilling.
“Digital
is cheaper, but not always: even as banks push their customers away
from the branches, the costs of some digital transactions remain higher
than at the branch. Transactions such as account balance enquiries are
free at the branch but charged by some banks when the enquiry is over a
mobile banking app. Additionally, there are several other charges
associated with digital transactions that stack up the costs, such as
charging for SMS receipts, access fee for internet banking, etc,” FSD
said.
The move to digital has not been a complete
success, with a significant number still preferring to walk into a bank
and greeting a smiling teller and relishing the touch of a solid stamped
receipt.
Then there are those that have a challenge
using mobile phones to transact who have often fallen into the trap of
the growing army of fraudsters and vowed they will only bank with a
human they can see.
This is the section of the market
that is being punished for no fault of their own. They, FSD fears, will
be left out of the great digital migration.
“Even as
digital transactions offer significant cost-savings, the channel
preferences for bank customers and the drivers of those preferences need
to be considered. Pricing branch transactions significantly higher to
discourage usage might potentially lead to a segment of the market
excluded from banking. Already, affordability is the main reason cited
for failure to use banking services,” FSD said.
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